MPC meeting on December 23, 2020: Policy rate is likely to hold at 0.5% after the economy starts to recover

      KResearch expects that the Monetary Policy Committee (MPC) will keep its policy rate steady at 0.50% during the meeting scheduled for December 23, 2020, since there are signs of gradual recovery in the Thai economy. Meanwhile, the economy is expected to benefit continuously from the Thai government’s measures to boost economy and purchasing power until the first quarter of 2021. However, the main focus will be the continuity of the recovery path of the Thai economy, as it may face risks from uncertainties of many factors during the first half of 2021, especially the COVID-19 pandemic at home and abroad and the Baht that has the tendency to appreciate continuously.

      Recently, the Baht rose to THB29.83/USD, reaching its strongest level in the last seven and a half years and breaching the psychological THB30.00/USD level, after which Thailand was added to “Monitoring List”, which is a list of countries whose macroeconomic and foreign exchange policies are monitored closely by the US.

      Although adding Thailand to the Monitoring List may not directly affect the implementation of monetary policy to maintain Thailand’s economic and financial stability, the increasing pressure on the appreciation of the Baht from such conditions may become a more complex challenge for Thai authorities. This is because the appreciation and volatility of the Baht inevitably affects the export sector and the economy as a whole, and may cause the inflation rate to move within a relatively low range for long time. If the situation continues for a long period and the economy faces additional risks, the pressure and the necessity to consider a policy rate cut will rise as well.