KResearch expects that the Monetary Policy Committee (MPC) will resolve to maintain their policy rate at 1.50 percent during the fifth meeting of 2018 slated for August 8 to ensure that the recovery is seen across all economic sectors and inflation moves toward to its set target. It must be noted that many central banks in Asia, along with the Bank of England and Bank of Canada have already raised their policy rates this year; therefore, it is quite clear that interest rates globally are on the upward trend. For Thailand, there are not many factors pressuring the MPC to hike their policy rate because domestic inflation is relatively low, moving below the mean of inflation target rate, and Thailand's current account surplus remains high, meaning that capital outflows and the Baht's appreciation may not have significant impacts on the Thai economy. As a result, the MPC will likely attach importance to domestic economic factors when implementing their monetary policy going forward.
Looking ahead, the MPC may send signals to keep their policy rate steady for some time while ongoing trade disputes between the US and China will likely make it more challenging for ASEAN central banks to implement their monetary policies. Meanwhile, different monetary stances taken by Thailand and the US may not affect the Thai financial system over the short term, thus enabling the MPC to keep their policy rate at a low level in order to find an appropriate timing to increase the rate later on. If the spread between MPC's policy rate and the US Fed Funds rate widens, it is expected that Thailand will experience steady capital outflows and the Baht will weaken. In addition, there is a likelihood that the US-China trade disputes may escalate and persist over the medium term, presenting a challenge for the Bank of Thailand to implement their monetary policy, because the People's Bank of China has already sent signals to ensure economic stability by adopting a more accommodative monetary stance, which is contrary to the US Fed. As a result, the Yuan and other regional currencies have weakened. This coupled with heightened risk seen in the Chinese economy may undermine confidence in ASEAN member states having deep economic integration with China, as well as steeping volatility of their capital outflows and driving up financial costs. These factors present challenges for all ASEAN central banks in the future.