BANGKOK: Thailand’s central bank raised interest rates by 25 basis points on Wednesday, as it attempts to bring inflation back within target while the economic recovery gathers pace against rising global headwinds.
The Bank of Thailand’s (BOT) monetary policy committee voted unanimously to raise the one-day repurchase rate to 1.75%, as expected by 18 of 22 economists in a Reuters poll, for a fifth straight meeting.
The BOT trimmed its growth forecasts for this year and next, pointing to increased global uncertainty, but expected the strength in the tourism sector to lessen the impact of any global slowdown. While it lowered its headline inflation forecast for this year, it increased its 2024 projection.
“The economy has good momentum while inflation, albeit easing, remains higher than that in the past ... so (rate) normalisation will have to continue,” Assistant Governor Piti Disyatat told a news conference.
“Our task going forward is to ensure that the economic recovery is stable,” he added.
An election on May 14 should not impact the economy or inflation much, Piti said. Kobsidthi Silpachai, head of capital markets research of Kasikornbank, said the BOT’s news conference highlighted inflationary risk “which is likely to be passed onto consumers as tourism helps the economy to recover”.
With Wednesday’s move, the BOT has raised its key rate by a total of 125 basis points since August, less aggressive than many of its regional peers.
The latest hike was in a “gradual and measured manner toward a level consistent with long-term sustainable growth”, the BOT said in a statement, adding it was ready to adjust the size and timing of rate changes if the growth and inflation outlook shifts.
Headline inflation dropped to a 13-month low of 3.79% in February, but was still above the BOT’s target range of 1% to 3%. On Wednesday the central bank cut its forecast for 2023 to 2.9% from 3.0%, and said it expected headline inflation to return to within target in the middle of this year.
The BOT trimmed its economic growth projections to 3.6% this year and 3.8% next year, from the previous forecasts of 3.7% and 3.9%, respectively, with a strong rebound in tourism the main driver.
Southeast Asia’s second-largest economy expanded 2.6% last year at a time when its tourism sector had just started to recover.
The central bank forecast foreign arrivals of 28 million this year and 35 million in 2024, up from previous forecasts of 25.5 million and 34 million, respectively and said those numbers could climb higher. That compares with nearly 40 million in pre-pandemic 2019.
Exports, another key driver of growth, have lagged, and the BOT said persistent inflationary pressure and banking challenges in advanced economies were risks.
The baht gained 0.4% to 34.14 per dollar at 1006 GMT.
The BOT forecast exports to contract 0.7% this year and to grow 4.3% in 2024. It had previously forecast export growth of 1.0% in 2023 and 2.6% in 2024.
Tim Leelahaphan, economist at Standard Chartered Bank, said he expects a final 25 bps hike at the next meeting on May 31.
“We acknowledge global uncertainty, but given Thailand’s robust economic indicators and the BOT’s positive outlook on the economy, we expect continued policy normalisation in an effort to build policy space.”