Economists remain divided on whether the Monetary Policy Committee (MPC) will hike the interest rate at today’s meeting.
The conflicting predictions on whether the MPC will maintain the 1.5 interest rate despite signalling to increase the rate at its previous meeting
is due to slowing economic growth, low inflation, trade deficit and falling oil prices.
Yunyong Thaicharoen, first executive vice president of Siam Commercial Bank Plc, predicts that the MPC will maintain the rate at 1.5 per cent because of the slump in the Kingdom’s economic growth in recent months.
For example, though Thailand has experienced low inflation it has also seen a decline in tourist volumes in recent months, especially those from China. Furthermore, in September, Thailand experienced its first decline in export growth in 19 months, reflecting the impacts of the ongoing US-China trade war.
The MPC’s next monetary policy move will depend on how the committee assesses the economy’s growth momentum in the midst of these issues, he said.
“Nevertheless, we will have to keep a close eye on their communications. There is still a possibility that the MPC will increase the interest rate in December or early next year. This is because the MPC will have a clear picture by that time of the level of inflation in the economy.”
If the MPC decides to hike rates, then it will most likely only be a slight and gradual increase, as there is no inflationary pressure to push an extensive hike. They might increase the interest rate by 0.25 percentage point at a time instead of 0.50 percentage point in the past, he said.
Somprawin Manprasert, chief economist of Bank of Ayudhaya Plc, said that the MPC would most likely maintain the current interest rate at the MPC meeting but would probably hike the rate by 0.25 percentage point in December. This is because they would want a clearer picture of the economic situation in Thailand before increasing the interest rate.
“We think the growth prospects for the Thai economy are promising in 2019, despite the forecast that it will grow at a slower rate of 4.2 per cent compared to this year’s 4.7 per cent,” he said.
“Hence, there is a high possibility that the MPC will start to normalise its monetary policy. We predict that the MPC will increase the interest rate to 1.75 per cent in December,” he said.
The MPC is awaiting additional data from the economic sentiment in the third quarter, which is yet to be released. The trade war and the high volatility in the stock market impacts economic sentiment, which may in turn lead the MPC to maintain the current interest rate until December, Somprawin said.
Amonthep Chawla, head of research office at CIMB bank, said the MPC would most likely maintain the current interest rate until December because they were waiting to assess the overall economic report of the third quarter that will be released on November 19.
Furthermore, the MPC will mostly likely maintain the current interest rate, as there are still concerns about the impact of the trade war and the low inflation, he said.
However, Standard Chartered Bank (Thailand) expects the MPC to start monetary policy normalisation and increase the interest rate by 25 basis points, from 1.50 per cent to 1.75 per cent in November after this meeting, according to Tim Leelahaphan, economist, Standard Chartered Bank (Thailand).
In the fourth quarter, the baht’s appreciation is slowing down, allowing the MPC to hike interest rates once more before the end of this year, he explained.