Interest Rate Expectation for March 2022
The survey respondents unanimously expect the Monetary Policy Committee to keep its policy rate unchanged at 0.5% at its meeting in March as the Bank of Thailand is likely to weigh on the country’s economic growth. Also, inflation driven by rising oil price, is likely to be factored in although the current inflation rate remains in its target range. Yields of 5-year and 10-year government bonds at the end of March are likely to rise in line with yields of the U.S. Treasury bond yields. In addition, an increase of government bond supply issued to fund its financing needs is taken into account. However, the Russia-Ukraine crisis may result short-term fluctuation.
Ariya Tiranaprakij, Deputy Managing Director of the Thai Bond Market Association, revealed highlights from Interest Rate Expectation Index for March 2022 as follows.
- All survey respondents expect the MPC to keep its policy rate at 0.50% in its coming meeting and expect the benchmark rate will remain unchanged for the rest of the first half of 2022. Respondents opine that the Bank of Thailand is likely to factor in the country’s economic recovery and rising inflation as a result of higher oil price, though the inflation remains in its target range. However, some respondents anticipate possible rate hike in the latter half of the year as the economy is expected to recover following the return or tourists. Also, the rate hike move by the U.S. Federal Reserve will put pressure on global central banks to follow suit.
- Most respondents expect bond yields of 5-year and 10-year government bonds at the end of March to rise 10-20 bps and 0-5 bps respectively from February level to 1.48%-1.58% for the 5-year tenor and 2.19%-2.24% for the 10-year tenor. The rise is in line with the rising trend of the U.S. Treasury bond yields, which track accelerating inflation and Fed’s interest rate hike. In addition, an increased supply of Thai government bonds may partly trigger the Thai bond yields to rise. Russia-Ukraine conflict will cause short-term fluctuation to the bond yields.