KGI Expects MPC to Lift Policy Rate in 2023 as Thai Economy Returns to Pre-Covid Level

KGI Securities stated that it is too early for monetary policy shift as economic conditions will still be too weak in 2021 or early 2022

The US economy is still considered too weak despite the Fed revising up the country’s GDP growth for 2021 to 7% while it is supported by huge debt-driven growth from government support of 16.7% of GDP in 2021 fiscal plus a rescue package of US$1.9 trillion or 8.6 % of 2021 GDP.


Major economic indicators such as unemployment are still too high and far from suitable stability while inflation is considered as transitory and impacted by abnormal base effects from abnormal prices in 2019.

In addition, there is the risk of a resurgence in daily infections despite massive vaccinations. Hence, it is unlikely that the Fed will rush to shift its policy this year or even the first half of 2022.

The Fed will have to have a strong belief that the monetary policy drawback will not hit financial markets and the economy that would require an immediate U-turn to tapering again as market participants are still deeply addicted to QE.


The COVID-19 crisis could ease next year due to more advanced developments in vaccines and chemical antiviral medicine in late 2021 that are the major factors triggering a closer end to the global health crisis. Economic stability could be proven by a decline in huge government support with the fiscal budget deficit declining to 7.8% of GDP and no gigantic rescue funds.

If economic growth remains at the forecast level of 3.3%, unemployment rate is 4.0% and inflation is closer to the Fed’s an uncomfortable level of 2% then the Fed will feel free to reduce its asset purchase.

In addition, the overall global economy is likely to see a good recovery from the health crisis in 2022 with significantly lower infections around the world. KGI believed the Fed will officially announce details on the end of its asset purchase at the FOMC meeting September 20-21, 2022, to be effective in October 2022. Accordingly, KGI expected the Fed to signal a rate hike and its exit strategy at the same time.


KGI anticipated the first rate hike to be announced at the FOMC meeting March 14-15, 2023, and the second rate hike to be announced at the FOMC meeting June 13-14, 2023.

Overwhelming liquidity of up to US$3.8 trillion in May 2021 and perhaps up to US$4.4 trillion during mid-2022, could shorten the tapering and the first rate hike from a year to 6 months.


In addition, KGI was still positive to perhaps faster recoveries in the global and Thailand economies. The MPC will consider a lifting on policy rate during mid-2023 as the Bank of Thailand thinks that the Thai economy will fully recover to the 2019 GDP level.

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