VIEW: JP Morgan Sees Upside Risks Around Its 2% Forecast

The Bank of Thailand (BoT) increased rates 25bp to 2%, as was widely expected, but JP Morgan interpreted the statement as hawkish. They maintain their 2% rate forecast over 2023 but with the risks skewed to the upside dependent upon global trade and the formation of a new government.

• “Keeping a hawk-eye on potentially stimulative fiscal policy and core inflation persistence – Similar to the March meeting, today’s MPC struck a decidedly hawkish tone. References to increased global economic uncertainty and banking stresses in advanced economies were dropped, replaced by the expectation of a “moderate expansion in global economic activity”.
• “Against the backdrop of rapid disinflation, additional tightening going forward requires the central bank adopting a pre-emptive move to counteract the potentially inflationary fiscal and economic policies of the next administration. … recent official comments surrounding the need for positive real interest rates implies a terminal rate of 2.4% or higher.”
• “However, there are non-negligible caveats to consider: post-election political uncertainty, a potential delay in the FY24 budget approval process, as well as implementation issues. In the meantime, base effects and softer global commodity prices are set to push headline inflation to the sub-2% handle for the rest of 2023, and drive up the real policy rate to positive territory.”