Kasikorn Research Center (KResearch) predicts an interest rate hike at the next Monetary Committee (MPC) meeting on May 31st. It is assumed that the rate will be increased by 0.25 percentage points to 2.00%. KResearch notes that this is likely to be the last rate increase in the current economic cycle.
However, the committee signaled at the previous meeting that rate hikes could continue due to risks associated with inflation caused by ongoing efforts to restore the domestic market, as well as uncertainties in the transfer of costs from producers to consumers, future trends in energy prices and consumer goods. These factors contribute to the likelihood of a May 31 MPC rate hike, the think tank notes.
However, declining inflationary pressures, increased economic risks due to domestic political uncertainty and a slowdown in the global economy, as well as monetary easing by the world's major central banks, could lead the MPC to suspend interest rate hikes in the near term.
According to the Kasikorn Research Center, if the Thai economy continues the robust recovery in the second half of the year as expected, the MPC is likely to keep its interest rate at 2.00% through 2023.
However, the think tank warns that the baht remains subject to volatility. The Thai currency is expected to receive support from the projected current account balance as the tourism sector looks to recover. However, the uncertainties associated with the formation of a new government may put pressure on the currency.
Heightened demand for "safe" assets such as the dollar, amid growing risks in the global economy, may also help strengthen the dollar, contrary to market expectations, given high inflation and a strong labor market.
