The Federal Reserve raised its benchmark interest rate in June, and the central banks of the United Kingdom and Switzerland followed suit, so how long can a Thai bank swim against the current rate of global rate hike?
BOT is one of the few major Asian central banks to keep rates below record lows since the onset of the epidemic, but it has recently signaled a change in policy as inflation reached a nearly 14-year high in May.
At the Monetary Policy Committee (MPC) meeting on June 8, 2022, the MPC voted to maintain the policy rate at 0.5%, but it was a close split decision andree members voted to increase the policy rate by 0.25 percentage points.
The Thai economy will recover faster than expected
Furthermore, the committee acknowledged in its comments that the Thai economy will continue to recover and may expand faster than previously expected due to strong domestic demand and the pickup of foreign tourists. The committee further considered that a very favorable monetary policy would require less in the future.
Jeremy Zuck, Asia-Pacific Sovereign Director at Fitch, said in his presentation last week that he expects Thailand to grow 3.2% of GDP in 2022 and 4.5% in 2023, which will be affected by steady growth in tourism and domestic demand.
Meanwhile, the yield on Thai government bonds has been rising in line with Thailand’s monetary policy normalization and US Treasury yield expectations. Since the beginning of 2022, the yield on 2-year Thai government bonds has risen 109 bps to 1.7%, while the yield on 10-year Thai government bonds has risen 94 bps to 2.8%.
The EIC expects the MPC policy rate to increase by 0.75%
In a recent article, the EIC (SCB Economic Intelligence Center) expects the MPC to raise the policy rate to 0.75% in 3/2022, reflecting the committee’s assessment that the Thai economy will expand faster than expected and lead to inflation. Grow and stay improved.
The EIC thus expects the MPC to increase the policy rate by 25 bps in Q3 to reduce the degree of accommodation of an ultra-simple monetary policy due to the following reasons
SCB Economic Intelligence Center
The BOT has forecast inflation of 6.2% this year and 2.5% next year and economic growth of 3.3% in 2022 and 4.2% in 2023. But BoT’s dual attitude has increased the cost of living for families. Mostly driven by fuel and food costs.
The weakness of the baht, which was once welcomed for growth in an export-dependent economy, has become a source of concern for Thai policymakers as it already raises rising import costs and hurts families, in addition to prolonging war between Russia and Ukraine Can