● The Bank of Thailand (BoT)maintainedthe policy rate at a record low 0.50%, in line withhouse and market expectations

- A unanimous vote from its seven committee members at its final meeting of the year.

- The committee judged that the economy would continue to recover, but accommodative monetary policy needed to be sustained to support overall economic growth. Meanwhile, the Omicron variant was said to be a key risk to Thailand’s recovery outlook.

● The BoT revised its GDP forecast slightly higher for 2021 (0.9%; previous: 0.7%; 2020: -6.1%), and loweredits projection for 2022 (3.4%; previous: 3.9%)

- The outlook for 2021 has improved following the relaxation of domestic COVID-19 restrictions and the reopening of Thailand’s borders to foreign tourists last month, without requiring a quarantine period. As such, the BoT expects a higher level of tourist arrivals in 2021 of 280.0k, up from a previous projection of 150.0k in their September report.

- For 2022, the committee expects the spread of Omicron to affect the economy early in the year, the impact of which would depend on the severity of the outbreak and the potential reinstatement of containment measures. The BoT highlights that economic recovery will still be driven by domestic spending and a steady improvement in tourism, but revised down its foreign tourist forecast to 5.6m (previous: 6.0m) in 2022, due to Omicron and the recent revival of mandatory COVID-19 quarantine for foreign visitors.

- The BoT anticipates the Thai economy to return to pre-COVID levels in early 2023, forecasting a higher GDP growth of 4.7% and foreign tourist arrivals of 20.0m.

● Highlighted that inflation would remain within their target in the medium-term, but global inflationary trends deemed a risk

- The committee increased its headline inflation projection for both 2021 (1.2%; previous: 1.0%) and 2022 (1.7%; previous: 1.4%), stating that inflation would rise in the medium-term due to supply-side factors, but is expected to ease by 2H22. Thailand recorded an inflation rate of 2.71% in November (Oct: 2.38%), its highest level in 6 months, reflecting higher energy bills and food prices. Nonetheless, these figures remain within the BoT’s 1.0% - 3.0% target, and ongoing government measures to lower living costs may help to subdue inflation going forward.

● We expect the policy rate to remain unchanged throughout 2022

- The central bank will likely maintain the policy rate at 0.50% to continue supporting Thailand’s nascent recovery in 2022, especially given the heightened risks posed by the Omicron variant. Furthermore, unlike its developed market counterparts, the BoT is under less pressure to hike rates given that inflation should remain well within its target.

Source: Kenanga Research - 23 Dec 2021