MPC Meeting on November 10, 2021: Policy rate likely to remain unchanged at 0.50% amid increasing positive economic factors

        KResearch assesses that the Monetary Policy Committee (MPC) will keep its policy rate steady at 0.50% in the meeting on November 10, 2021, in light of positive economic factors that stem from Thailand's reopening of the country and continuous easing of lockdown measures. These have contributed to the recovery of domestic economic activities, particularly consumption and investment, as well as a faster-than-expected recovery in the tourism sector, which will benefit employment. Although the number of inbound tourists in 2021 may be limited, it is expected to increase significantly over the forthcoming period. Meanwhile, accelerated vaccination is expected to result in more than 70% of the Thai population being fully vaccinated by early 2022, which will mitigate the risk of further COVID-19 outbreak. Nevertheless, the situation of the COVID-19 pandemic remains highly uncertain, with countries such as Singapore, China, the United Kingdom and Russia facing a dramatic resurgence in numbers of COVID-19 infections. Therefore, the MPC is expected to maintain its policy rate unchanged to support Thailand’s economic recovery amid a situation where risk factors persist.

        Although Thailand’s inflation has surged considerably due to higher energy prices, it is expected to remain within the MPC’s inflation targeting framework of 1.0-3.0%. However, risks of higher inflation will persist if global crude oil prices surge above USD90 per barrel and do not fall back down as forecasted. Thailand’s inflation rate rose to 1.7%YoY in September 2021 after the end of the water and electricity fee cuts, coupled with an acceleration in oil prices. Looking to the remainder of 2021, inflation is projected to accelerate with higher oil prices as much farmland has suffered from flooding, causing farmers to raise some vegetable prices. Thailand’s inflation rate for 2021 will likely stand at 1.2%, while the government is set to cap diesel prices at no more than THB30 per liter to reduce the impact on people's cost of living. If global crude oil prices continue to rise and do not abate in 2022, Thailand’s inflation could exceed the inflation targeting framework and put the Thai economy at risk of stagflation. This will be a challenge to the MPC’s monetary operations in the future while the Thai economy has not fully recovered. If the policymaker opts to cut the policy rate to stimulate the economy, it will accelerate inflation, which in turn will affect consumers' purchasing power. On the other hand, raising the policy rate will not directly solve the inflation problem, and will only further weaken the economic recovery.