KResearch expects that the Monetary Policy Committee (MPC) will keep its policy rate on hold at 0.50% during the meeting on June 23, 2021, in order to support Thailand's economic recovery amid low inflationary pressures. The Thai economy remains fraught with risks from the COVID-19 outbreak with a continuous increase in the number of new daily cases, and uncertainties over the vaccination rate even though it has doubled or tripled from previous months, thanks to ongoing vaccination drives. Government measures to boost the economy will likely remain essential amid ongoing economic uncertainty surrounding the pandemic. Meanwhile, expansionary monetary policy remains necessary to sustain the economy during this period of high risk. On the other hand, inflationary pressures will remain limited, though Thailand's inflation rate rose in April and May 2021, to 3.4% and 2.4%, respectively. The trend has been driven by energy prices, prices of certain fresh products, and the low base of the previous year. Looking ahead, Thailand's inflation rate will tend to climb higher but is expected to slowly decrease in the second half of 2021 consistent with global inflation trends.
Regarding economic projections to be announced at the upcoming meeting, the MPC will likely keep Thailand's economic forecast for 2021 steady at around 1.5 - 2.0%, in line with the forecast in the May 2021 MPC report. If 64.6 million doses of COVID-19 vaccines can be administered according to plan, the Thai economy is expected to grow 1.5%. However, if vaccination is accelerated and reaches 100 million doses, the Thai economy could expand by 2.0%.
The Bank of Thailand (BOT) will likely focus on implementing measures that are suited to target groups and responsive to the issues facing COVID-19-hit households with the aim of reducing their debts; a feat which is still perceived as achievable. While a policy rate cut may not be necessary at present, it may be a feasible option that would help to ease households' financial burdens. Nonetheless, the BOT is more inclined to issue specific measures rather than general measures like policy rate cuts. While a policy rate cut remains unlikely at this point of time, the BOT will likely utilize this ammunition, should the economy once more take a downturn amid the limited policy space. If the BOT were to reduce its interest rate in spite of rising inflation, while the US Federal Reserve (Fed) signals a withdrawal of its expansionary monetary policy earlier than previously forecast, the central bank may have to bear higher cost if it is compelled to raise the policy rate. The Fed's tightening stance on monetary policy would then result in capital outflows from emerging markets and thereby put a pressure on the BOT in maintaining an expansionary monetary policy in the forthcoming period.
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