KResearch expects the Monetary Policy Committee (MPC) to keep the policy steady at 0.5% at its meeting on August 4, 2021 to support Thailand’s economic recovery. Due to the rising risk of the COVID-19 pandemic and the soaring number of infections, the government must extend and adopt stricter containment measures, putting pressure on businesses and employment, and worsening consumer purchasing power and confidence. Therefore, the accommodative monetary policy with new fiscal stimulus measures remains imperative in supporting the economy. At this meeting, the MPC will likely keep the policy rate steady at 0.5% to maintain sufficient policy space in case of further economic deterioration in the face of limited monetary policy capacity. Meanwhile, the Bank of Thailand (BOT) should continue focusing on measures that could reduce the debt burdens of businesses and households.
If the economy deteriorates more than expected, the MPC will be under pressure to issue additional bailout measures, and a policy rate cut may be an option that the MPC will consider. If the COVID-19 pandemic persists until the end of the third quarter of 2021 and the government needs to extend its containment measures, the Thai economy is bound to face increased downside risks. The government may then need to introduce additional monetary and fiscal measures to mitigate the impact on the economy. The BOT will also likely maintain specific measures to help reduce debt burdens. If necessary, the MPC may cut the policy rates in the future to help ease the financial burdens of households and businesses.
Amid rising global inflation and the Fed signaling an earlier-than-expected withdrawal of accommodative monetary policy, this could pose challenges to the BOT’s monetary policy. The Fed's tightening monetary policy will lead to capital outflows from the emerging markets, while the Thai economy tends recover more slowly than other countries, prompting the MPC to possibly cut the policy rate in contrast to other central banks. This will further contribute to capital outflows from the Thai currency market and could put the Baht under pressure in future.
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