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28 Nov 2022

Econ Digest

The MPC is set to raise its policy rate by another 0.25% amid elevated inflationary pressures


        The Monetary Policy Committee (MPC) is expected to raise its policy rate by another 0.25% to 1.25% at its last meeting of 2022 amid mounting inflationary pressures while the Thai economy is set to gradually recover ahead. Thailand's headline inflation rate in October fell for the second consecutive month, but remained above the MPC's target. Core inflation increased slightly over the previous month, which reflects the continued acceleration in overall product prices. Inflationary pressures from fuel prices began to ease, and the Thai economy is projected to rebound steadily after growing by 4.5% YoY during 3Q22. The MPC may, therefore, consider raising its policy interest rate by another 0.25% at its upcoming meeting. It is expected that the MPC will gradually hike its policy rates as earlier signaled. Meanwhile, pressure from currency-related issues has begun to decline after the Baht has strengthened in line with the weakening U.S. dollar.

        Looking into 2023, it is expected that the MPC's decision to raise its policy rates will depend largely on inflationary pressures, the continuity of the economic recovery, and the directions of policy rates of leading central banks such as the US Federal Reserve (Fed). The MPC is likely to slow its policy rate hikes with Thailand's policy rate likely to peak at around 1.75-2.00% in 2023 amid increasing economic risks from the slowing global economy. Meanwhile, inflationary pressures may begin to subside, prompting central banks around the world, including the Fed, to give more weight to economic risks. The Fed will likely delay its interest rate increases at its subsequent meetings and may stop raising rates in the first half of next year. This would result in less support for the U.S. dollar and possibly a stronger Baht, helping reduce pressure on the MPC to maintain its stability. As a result, with increased economic risks coupled with easing pressures from inflation and currency, the MPC is expected to place more emphasis on economic risks and may slow or even stop raising rates during 2023.  

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