How does interest adjustment affect the Thai economy?

Policy rate adjustment by the Monetary Policy Committee (MPC) in Thailand plays an important role in controlling inflation and stimulating the economy, which is a tool that has a wide impact on the economy. This article will help you understand the mechanisms of interest rate policy and the impact on the Thai economy from interest rate adjustments.

Policy interest and inflation control

One of the central bank’s main tasks is to keep inflation within the target range. If inflation is too high or too low, the central bank must use financial instruments to control the situation. The policy rate is an important tool for implementing monetary policy.

Interest rate hikes to slow the economy

When the central bank raises interest rates, financial institutions will adjust their deposit and loan rates in line. This interest rate increase will make people more likely to save more money and reduce spending and investment, especially those who have borrowing plans to slow down the plan due to higher costs. On the other hand, those who have debt will have to pay higher interest and have less money to spend.

Reducing demand from the public and business sectors will slow the economy and help reduce inflation. In case of high inflation, interest rate hikes can be a means of controlling the rapidly changing prices of goods and services.

Interest rate cuts to stimulate the economy

During the economic downturn, the central bank may announce interest rate cuts to stimulate spending and investment. Interest cuts will reduce borrowing costs, and increase incentives for people and businesses to borrow and invest more. In addition, this method will generate more money in the economic system, encouraging people to spend more.

Increasing demand from interest rate cuts may help the economy grow, but at the same time, inflation may rise as well.

Effects of FED Interest Adjustments

The Fed’s interest rate adjustment has significantly affected financial markets and the Thai economy, especially in terms of capital inflows and exchange rates. When the Fed raises interest rates, investors move their funds back to the US for higher returns, resulting in capital outflows from the Thai stock market.

The baht and trade

Rising U.S. interest rates have resulted in the strengthening of the dollar, and weakening of the Baht, which has affected Thai exports. Meanwhile, Thai products may be more competitive in price, but demand for goods from the U.S. may decrease, so exports to the U.S. may decrease as well.

Impact on industry groups

Interest adjustment has had a significant impact on many industrial groups in the Thai stock market, such as:

Banks Group: They may benefit from rising interest rates but have to be aware of rising NPL risks.
Real Estate Group: May suffer from higher borrowing costs.
Exportation Group: This may benefit from the depreciating baht, which will make Thai goods prices more competitive.
Energy Group: Have to confront with fluctuations in world petrol prices

Interest rate adjustments are an important tool to control the Thai economy, which affects the spending, investment, and competitiveness of the country. Meanwhile, interest rate adjustments in the United States also affect the Thai economy in many ways, both in exchange rates, trade, and capital markets.

Understanding these impacts will help both the public and investors to adapt more effectively to changing economic conditions.

References from
plus.thairath / pi.financial / bot.or