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28 Mar 2023

Econ Digest

Amid reduced inflationary pressure, the MPC is expected to raise its policy rate by 0.25% to 1.75% at its meeting on March 29, 2023, possibly the last rate hike in this cycle


        The Monetary Policy Committee (MPC) is expected to raise its policy rate by 0.25% to 1.75% at its upcoming meeting. This may be the final rate hike for this cycle, amid a significant drop in inflationary pressure. Thailand's headline inflation fell to a 13-month low at 3.8%YoY. The inflation rate remains higher than the central bank’s target range, suggesting that the MPC will raise its key interest rate at the upcoming meeting. The move is aimed at building policy space if the MPC were to face future challenges that require policy rate cuts. Meanwhile, the Thai economy is exposed to more risks from the global economic slowdown, amid the impact of ongoing increases in policy rates since last year by major central banks like the US Federal Reserve (Fed) and European Central Bank (ECB), plus the recent problems faced by some Western banks. As a result, the MPC may need to give more weight to economic risks and perhaps stop raising its policy rate in the near term.

        In addition, several central banks around the world, especially the Fed, are likely to reach their peak rates, thus putting a brake on their tightening monetary policy. At the Federal Open Market Committee (FOMC) meeting on March 21-22, 2023, the Fed decided to raise its policy rate by 0.25% as expected. Plus, the Fed has signaled to cap the rate hike cycle, potentially leading to easing pressure on its tightening monetary stance. However, central banks’ monetary policies remain uncertain, and much will depend on the economic and inflation outlooks, as well as financial stability going forward, amid problems of the banking sector in some Western countries. If the US economy enters a recession and the Fed sees the need to cut its policy rate, attention must be paid to whether or not the MPC will consider decreasing the policy rate.

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Econ Digest