BANGKOK: The Thai baht nursed losses on Wednesday as the central bank held its key interest rate steady to support economic recovery, while Asian stocks tracked a Wall Street rally amid fears that aggressive central bank rate hikes could lead to stagflation.

The baht was down 0.1% after easing 0.2% earlier in the session following the central bank’s decision. The Bank of Thailand (BOT), however, raised its forecast for consumer price index to 6.2% in fiscal 2022, compared with its earlier view of 4.9%. Thai stocks were up 0.3% after the announcement.

“While the outcome was widely expected, what is surprising that three of the seven panelists voted for a rate hike in this meeting, suggesting that the hiking cycle is imminent,” said Poon Panichpibool, a markets strategist at Krung Thai Bank.

Thailand’s May headline inflation hit its highest level in nearly 14 years and prices are expected to continue rising. The consumer price index jumped 7.1% year-on-year, eclipsing the central bank’s 1%-3% target.

“With the gradual improvement of Thailand’s tourism industry and current account position, it is only fair that the central bank considers tightening policy rate in the future,” Panichpibool said.

Equities in the region gained some momentum, with Taiwan’s benchmark index climbing 1% to lead gains, followed by Indonesia’s, which traded 0.7% higher. Stocks in Malaysia and India also advanced.

India’s central bank raised the repo rate by 50 basis points (bps), the second hike in as many months, to combat galloping inflation, and said the faster pace of monetary policy normalisation in advanced economies had amplified volatility in financial markets.

The rate hike follows a 40-bp unscheduled rise in early May that kicked off the central bank’s tightening cycle, which economists expect to be relatively short.