KResearch assesses that the Monetary Policy Committee (MPC) will likely keep its policy intact at 0.5 percent during the upcoming meeting scheduled for August 4, 2021 to support the Thai economic recovery amid increased risk, stemming from the Delta coronavirus (COVID-19) variant. This highly contagious COVID-19 variant has made it even more difficult to control the pandemic. The soaring number of daily infections has left the Thai public health system with greater restriction than ever before. Given this, the government may have to extend its stringent containment measures. All these factors are set to further hurt the business sector, employment, consumer purchasing power and confidence. Therefore, the current accommodative monetary policy, along with new fiscal stimulus measures, remains imperative in helping sustain the economy. Due to limited policy space, the MPC will likely keep its policy rate steady at 0.5 percent to preserve room for maneuvering in case economic conditions further deteriorate while the Bank of Thailand (BOT) may place emphasis on effective measures, aimed at helping reduce debt burdens of businesses and households.
In spite of this, it is expected that the MPC may be pressured to issue additional relief measures if economic conditions get much worse. A policy rate cut is another option that the MPC will likely consider. However, if the COVID-19 pandemic at home persists until the end of 3Q21 and the government is compelled to extend its containment measures ahead, the Thai economy is bound to face increased downside risks. The government may, therefore, need to introduce additional monetary and fiscal measures to mitigate the impact of COVID-19 on the economy. The BOT will likely continue specific measures such as its debt moratorium program to help consumers reduce their debt burdens. It is also likely that the MPC will cut its policy rates if needed to help ease the financial burdens of households and businesses. However, the upward trend in global inflation and the Fed's signals to withdraw its accommodative monetary policy sooner than expected may represent challenges to the BOT. The Fed's tightening of its monetary policy may cause capital to pour out of emerging markets. The fact that the Thai economy is set to recover at a slower pace than other countries, thus prompting the MPC to consider shaving its policy rate in contrast to other central banks, may trigger capital flight from the Thai financial market and in turn pressure the Baht's value, going forward.