The Bank of Thailand expects the fiscal 2023 budget disbursement to be delayed by one more quarter than its previous assessment of one quarter, mainly due to the delay in the formation of the new government.
Given the new government's formation would be delayed from the existing timeline in August, the Bank of Thailand estimates that the fiscal 2023 budget disbursement would be delayed for two quarters from the previous forecast of only one quarter.
However, the delayed fiscal budget would not significantly impact economic growth, said Piti Disyatat, secretary of the central bank's Monetary Policy Committee (MPC).
"However, the delay of the new government formation would affect public confidence, as well as domestic investment and foreign direct investment. In light of this scenario, the MPC would continue to monitor the economic situation both locally and internationally to assess policy rate movement," he said.
The MPC on Wednesday voted unanimously to raise the policy rate for the seventh consecutive meeting since August 2022 by 0.25 percentage points from 2% to 2.25%, effective immediately.
Mr Piti said the policy rate has been entering the neutral zone under the central bank's policy normalisation.
With global financial markets facing uncertainty, the committee would continue to monitor global financial conditions, major central banks' monetary policies and China's economic outlook.
According to the central bank, the MPC decided to increase the policy rate by 0.25 percentage points in accordance with the continuing economic expansion, driven mainly by tourism and private consumption.
However, merchandise exports contracted in the short term partly due to subdued demand from China and global economic slowdown, but should pick up as economic activity regains momentum.
"Risks to growth outlook increase from the potential delay in merchandise export recovery and domestic political uncertainties. The policy rate hike would also help preserve the policy space in light of the highly uncertain outlook," Mr Piti said.
Headline inflation declined from energy prices, cost of living subsidies and the high base last year, but should rebound in the second half as the effects of temporary factors dissipate.
Core inflation edged lower, but should stabilise at a higher level than in the past due to upside risks from higher food prices amid the El Nino phenomenon.
The overall financial system remains resilient. Financial institutions maintain high levels of capital and loan loss provision.
Credit quality might deteriorate for some fragile small and medium-sized enterprises and households with impaired debt serviceability, higher debt burden and slower income recovery, according to the central bank.
Overall financial conditions became less accommodative but remain supportive of fund mobilisation by the private sector and the economic recovery.
Private sector funding costs increased consistent with the policy rate, while the slowing private credit growth partly reflected a normalisation of lending activity after an uninterrupted credit expansion throughout the Covid crisis.
Under the prevailing monetary policy framework, the committee seeks to maintain price stability, support sustainable growth in line with potential and preserve financial stability.
In view of these objectives, the committee expects a continuing economic expansion and narrowing slack. Inflation is expected to stabilise within the target range, with upside risks that still warrant monitoring, he said.