We at KResearch expect that the Monetary Policy Committee (MPC) will likely keep its policy rate unchanged at 1.50 percent during the second meeting of 2018 scheduled for March 28 to ensure continuing growth in the Thai economy going forward amid a number of external risks, in particular a possible US-China trade war. The current inflation rate, which remains at the lower band of the Bank of Thailand’s inflation target, will also support the MPC to continue its accommodative monetary policy stance.
Looking ahead, the MPC will likely maintain its policy rate over a near term to support the economic recovery and businesses, especially SMEs that are still heavily dependent on commercial banks for loans. Moreover, keeping the policy rate low may help ease pressure on the stronger Baht resulting from a narrower spread between the Thai and US government bond yields because it will discourage foreign capital inflows. Risk stemming from sudden capital outflows will be limited because of Thailand’s high current account surplus resulting from thriving tourism and exports. As a result, a likelihood that the MPC will raise its policy rate over the coming 3-6 months looks slim. However, it may hike the policy rate perhaps at the 2018 yearend if the Thai economic performance overall improves toward its potential level and the Bath becomes more stable or begins to weaken.