Citi expects policy rate to rise to 2.25% by 3Q2023 despite BOT concerns about debt

Citibank Thailand still expects the policy rate to be gradually adjusted to 2.25% by the third quarter of 2023 after the Bank of Thailand (BOT) announced an increase in the policy rate to 1.50%.

Citi eyes policy rate at 2.25% in Q3

Nalin Chatchotham, an economist at Citibank Thailand, said the BOT is expected to raise the policy interest rate to 2.25% in the third quarter of 2023, as the Thai economic growth momentum persists between 2023 and 2024. On the positive side, although the BOT still has concerns about household debt and SMEs, the BOT still views that private credit can continue to grow. despite rising interest rates and financial costs

Citibank expects headline inflation to average 2.2% next year, so the real policy rate will slide from negative to 0%, similar to the historical average. But the risk factor that may cause the Bank of Thailand to raise the policy rate less than expected is

  • The global economy may slow down more than previously expected. and may affect the export sector of Thailand
  • If the baht appreciates too quickly, some MPC members may consider delaying the rate hike.

The recent appreciation of the baht is unlikely to be the main concern of the MPC at this stage, although the recent appreciation of the baht raised concerns about possible impacts in some sectors, such as those exports. The exchange rate is not one of the main goals of monetary policy. which consists of sustainable growth of the economy price stability and stability of the financial system

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On 25 January 2023, the Monetary Policy Committee (MPC) unanimously voted to raise the policy rate by 0.25% per year from 1.25% to 1.50% after assessing that The downside risks to global economic growth have diminished. Both the latest economic data of developed countries came out better than expected. and the opening of China faster than expected

Moreover, the Bank of Thailand (BOT) has predicted that the global economy will pass the lowest point this year. Including the export sector will begin to recover in 2024, although Thai exports at the end of the year will grow lower than expected. 2023 increased to 34 million people from 31.5 million people originally expected, which the BOT views that the recovery of the tourism sector will result in employment. as well as an increase in the incomes of the services sector and the broader self-employed

At the same time, the Bank of Thailand’s outlook on domestic inflation has not changed much from the November 2022 meeting, noting that falling global commodity prices eased supply-side inflationary pressures in Thailand. The private sector’s medium-term inflation expectations remain anchored at 1-3% of the monetary policy target.

However, the BOT still sees that core inflation remains to be kept an eye on, which is still at a much higher level than in the past, which the BOT views that the latest inflation indicators show that inflationary pressure is still high. And still need to be careful to pass the unfinished production costs to the prices of consumer goods in the future. Especially from electricity prices that have been adjusted earlier in 2023, as well as the recovery of the tourism sector may be another factor that causes higher inflationary pressures from demand factors.

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