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31 Jul 2023

Econ Digest

MPC meeting on August 2, 2023: Policy rate will likely be raised by 0.25% to 2.25% as previously signaled


        The Monetary Policy Committee (MPC) is expected to raise its policy rate by 0.25% to 2.25% at its upcoming meeting on August 2, 2023 as earlier signaled, despite the fact that inflationary pressure has seen a significant decline as the Thai economy remains on the recovery path. The country’s economy is expected to see higher growth in the second half of this year as compared to the first half, driven mainly by a revival in the tourism sector. Meanwhile, inflation is at risk of accelerating once more in the latter half of the year amid uncertainties over the trend of commodity prices and cost pass-through effects. Based on these factors, the MPC is set to continue raising its key interest rate in order to build up policy space if it were to face future challenges that require policy rate cuts.

        However, the anticipated policy rate increase at the August 2 MPC meeting may be the final rate hike for this cycle. If the Thai economy continues to recover in the second half of 2023 as expected, the MPC is likely to maintain the policy rate at 2.25% until at least the end of the year. Amid lower inflationary pressure, the inflation rate going forward is forecasted to be within the Bank of Thailand’s target range of 1-3% even though it may surge from the near-zero rates seen in May-June. In addition, central banks worldwide, led by the US Federal Reserve (Fed), are likely to reach their peak rates in this cycle, resulting in easing pressure on the value of the Baht. Thus, the expected rate hike at the upcoming MPC meeting is potentially the last in the current interest rate hike cycle. Looking ahead, if the Thai economy is set to rebound steadily, the MPC will likely maintain the policy rate at 2.25% for the remainder of the year.

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Econ Digest