Thailand’s central bank raised its key interest rate again on Wednesday as inflationary risks linger and the economy continues to grow despite rising global risks and post-election political uncertainty at home.
The central bank said the rate was now closer to a ‘neutral’ level, with Southeast Asia’s second-largest economy growing towards its potential and inflation moving into its target range.
Most analysts expect Wednesday’s move could mark the end of its policy tightening cycle, which has seen the key rate raised by a total of 175 basis points (bps) since last August from a record low of 0.50% to tame surging prices.
The Bank of Thailand’s (BOT) monetary policy committee voted unanimously to raise the one-day repurchase rate by 25 bps to 2.25%, as expected by 18 of 22 economists polled by Reuters.
In a statement, the BOT said headline inflation is expected to stabilise within its target range, but core inflation is expected to level off at a higher level than in the past.
“In the context of continuing economic expansion and narrowing slack, monetary policy should keep inflation sustainably within the target range and foster longer-term macro-financial stability,” it said.
Assistant Governor Piti Disyatat told a briefing that the next rate move could be a hike or a hold, depending on the outlook for the economy, which could slightly miss forecasts this year.
“We think this marks the end of the tightening cycle. With inflation now well below target and headwinds to the economic recovery mounting, we expect rates to remain on hold for the rest of the year,” Capital Economics said in a note to clients.
“Exports are likely to weaken, if as we expect, advanced economies fall into recession in the second half of the year. The uncertain political climate – two months since the election a new prime minister has yet to be appointed – poses a major downside risk to the outlook”.
Oxford Economics shared a similar view: “We expect an extended pause for now. The latest hike gives BOT more room if it needs to start easing if the recovery sputters further”.
The BOT said the economy should continue to expand, driven mainly by tourism, but said there were growing risks from weak global demand and domestic political uncertainties.
Investors are still awaiting the formation of a new government after prime ministerial candidate Pita Limjaroenrat, whose Move Forward party secured a stunning election win in May, failed in his bid for prime minister.
Pita’s party has now been
excluded
from a coalition of parties hoping to form the next government. The next parliamentary vote to
pick a prime minister
is on Aug. 4 as the stalemate drags on.
In May, the BOT forecast the economy would grow 3.6% this year and 3.8% next year. Last year’s growth was 2.6%. It will next review the projections in September.
The BOT predicted 29 million foreign tourist arrivals this year and 35.5 million in 2024. That compared with nearly 40 million visitors in pre-pandemic 2019.
Thailand’s annual headline inflation rate was 0.23% in June, below the BOT’s target range of 1% to 3%, but it is expected to pick up from the second half of this year, Piti said.
The core rate, at 1.32% in June, has been more persistently elevated due to demand pressures amid expanding economic activity and the passing-through of higher costs. (Reporting by Orathai Sriring, Kitiphong Thaichareon and Satawasin Staporncharnchai; Editing by Kim Coghill)
