Kasikorn Research Center It is estimated that at the Monetary Policy Committee (MPC) meeting on March 30, the MPC will keep the policy rate unchanged at 0.5% to support economic recovery, which is at risk from the conflict between Russia and Russia. Ukraine, however, will face more challenges. to maintain price stability amid rising inflationary pressures
The Russian-Ukrainian crisis has affected energy prices. including the prices of various commodities both industrial metals and agricultural products used as raw materials for production continued to accelerate. This will increase the inflation pressures of Thailand. and to undermine the purchasing power of consumers who were originally fragile due to the impact of COVID-19. In addition, the Russian-Ukrainian crisis also affects the recovery of Thai tourism. which currently relies heavily on European tourists during the period of China’s lockdown. It will also affect Thai exports that will be affected mainly by the slowdown in trading partners’ economies. Therefore, amid increasing economic risks, the MPC is expected to maintain the policy rate at 0.5% in the upcoming meeting. In order to support the recovery of the Thai economy, the MPC will likely focus primarily on economic recovery despite the risk of rising inflation as well.
Kasikorn Research Center believes that the MPC will face more challenges in maintaining price stability. amid the trend of energy prices that will remain at a high level in the future Thailand’s headline inflation rate in 2022 is projected at 4.5%. Accelerating energy prices in the world market have also increased the burden of fuel and transportation costs in the country. while the government measures that help freeze the price of diesel to help mitigate the impact on the household and transportation sectors may be done in the short term Because the government has to bear the burden of increasing fiscal costs.
In addition, energy prices and commodity prices are rising. As a result, manufacturers face rising costs. This was reflected in the Producer Price Index (PPI) which was 9.4% in February. Some manufacturers may gradually pass this additional cost to consumer prices. and ultimately resulting in higher inflation.
However, the spike in inflation was mainly driven by supply-side factors. The policy interest rate hike may not solve the inflation problem exactly how much. In addition, it will further deteriorate consumption and investment. Therefore, it is expected that the MPC may not consider using the policy rate hike policy to curb inflation in the direction of central banks around the world because the Thai economy still has no enough strength Fiscal policy continues to play an important role in helping to mitigate the impact of households from rising cost of living.
Meanwhile, the tight monetary policy direction of central banks around the world, especially the Federal Reserve (Fed), will likely put pressure on accommodative monetary policy going forward. especially in the second half of the year From the meeting of the Federal Open Market Committee (FOMC) last time. The Fed has started a cycle of rising interest rates. with a resolution to raise the policy interest rate by 0.25% to 0.25-0.50%. It may raise interest rates by more than 0.25% in one or more meetings in the future.
“The gap between the Thai and US policy interest rates will widen, including if inflation in Thailand continues to remain high. This will result in the real interest rate of Thailand becoming more negative. This opens up risks to financial stability. Therefore, the MPC will continue to consider the overall situation of the Thai economy around, weighing the risks arising from pressure on capital outflows. including the situation of the baht The pressure is likely to be in the second half of 2022 onwards.”
However, if the Thai tourism sector does not recover as expected Due to the impact of the Russian-Ukrainian crisis that affects more than estimated The Thai economy is at risk of facing another negative current account deficit this year. It will further increase the pressure on the baht to stay in the depreciation direction.
At this MPC meeting, economic and inflation projections will be published. The market must monitor the MPC’s revision of economic and inflation projections as it reflects the view of MPC in considering monetary policy going forward The Kasikorn Research Center expects that the MPC will have a slight revision of the economy this year from the previous projection in December 2021 of 3.4%. May increase pressure on the money market and capital markets in the short term.
