Standard Chartered Bank (Thai) expects the Bank of Thailand to start taking a hawkish stance on the policy rate in June, though an actual rate hike might have to wait until the second half of next year.
The bank predicts the Bank of Thailand will keep its policy rate unchanged at 0.5% until the middle of 2023 to support the economic recovery because growth is the central bank's priority.
However, the Bank of Thailand is expected to start signalling a shift to normalisation at its Monetary Policy Committee (MPC) meeting in June this year, said Standard Chartered economist Tim Leelahaphan.
Standard Chartered believes the US Federal Reserve will hike its policy rate aggressively this year. The Fed is expected to increase its policy rate by 50 basis points in both May and June, then by another 25 basis points in July for a total increase of 125 basis points.
In this scenario, the spread between the Fed funds rate and the Thai MPC level would be widened significantly. At the same time, the Thai central bank would be faced with greater inflationary pressures while the country's economy only gradually recovers. Therefore it is possible the Bank of Thailand may signal a normalisation of the policy rate, Mr Tim said.
Standard Chartered changed its prediction for Thailand's 2022 headline inflation rate to 4.5% from 3%, which it said would impact domestic consumption.
However, the bank kept its 2022 Thai GDP growth forecast unchanged at 3.3%, supported by a gradual improvement in economic activity in the second half of this year.
He said the country's tourist numbers have been gradually picking up.
Yet given the effects of the Russia-Ukraine war on higher inflation and global energy prices, Standard Chartered downgraded its foreign tourist arrivals projection this year to 4-5 million from 5-10 million, though it still sees the sector as rebounding.
In addition, the bank believes Thais can eventually live with Covid-19 and return to a normal life, which should encourage economic activities in the second half of this year.
Mr Tim said the bank forecast Thai economic growth of 5% in the second half this year, rising from projected growth of 1.5% in the first half.
The economic recovery should be supported by the Thai political situation remaining stable and the passing of the fiscal 2023 budget before the next election, he said. As a result, the baht is expected to gradually appreciate against the US dollar.
Standard Chartered expects the Thai currency to remain above 33 baht against the greenback in the first half of 2022, with the pair moving to 32.5 baht and then 32 baht in the third and fourth quarters, respectively.
