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17 Nov 2020

Econ Digest

MPC meeting on November 18, 2020: Policy rate likely on hold at 0.5% in order to maintain policy space in case of necessity

KResearch expects that the Monetary Policy Committee (MPC) will keep its policy rate steady at 0.50% during the meeting scheduled for November 18, 2020, due to following supporting factors: (1) The Thai economy has bounced back faster than previously anticipated. Thailand’s GDP in the third quarter of 2020 shrank 6.4%YoY, bettering the 12.1% contraction reported for the second quarter of 2020. (2) Financial and loan measures will help bolster liquidity for cash-strapped businesses and support operational mechanisms of fiscal stimulus measures. (3) Non-interest measures may address issues related to the Baht’s appreciation more effectively. Since Thai policy rate is already very low, the MPC is expected to maintain its policy space in case of necessity. Nonetheless, the rapid appreciation of the Baht since the beginning of November 2020 will become one of the factors that the MPC will prioritize at the upcoming meeting as it could derail the Thai economic recovery.

 

KResearch assesses that the Thai economy will likely experience a number of downside risks ahead, and that the MPC may ease its monetary policy if needed. Although the MPC may maintain its policy rate at 0.50% in the base case, it will be quite challenging for the MPC to ensure steady economic recovery as it hinges on many factors, such as the resurgence of the COVID-19 pandemic at home and abroad, the domestic political situation, and the effectiveness and adequacy of economic measures that have already been implemented. The aforesaid factors will be closely monitored by the MPC, while additional interest rate cuts may be implemented if those factors become so volatile that the Thai economic recovery is derailed. It is also expected that under such circumstances, the financial institutions development fund (FIDF) rate reduction or other measures should be considered to relieve the pressure on financial institutions to ensure lower financial costs for customers.

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