Bank of Thailand increases interest rates, again!

The Monetary Policy Committee (MPC) of the Bank of Thailand insists that it had to hike its policy interest rate by 0.25% to 1.50% yesterday for the fourth consecutive time to curb high inflation.

MPC Committee Secretary Piti Disyatat reported that the committee was unanimous in its decision.

“Under a gradual policy normalisation, rate hikes could take place for a while if appropriate for the Thai economic environment. The committee will also consider a terminal rate in future meetings.”

In August 2022, the MPC voted 6-1 to increase the rate by 0.25% to 0.75% for the first time in four years, as a measure to address persistent high inflation, reported Bangkok Post.

The committee subsequently raised the rate by 0.25% at each of its following meetings in September, November and most recently, to curb high inflation. The MPC stated that it believes a gradual normalization of policy is appropriate for monetary policy, in line with the growth and inflation outlook.

“The Thai economy is projected to continue growing, with the tourism sector exhibiting a faster recovery following the return of Chinese visitors. This will contribute to a more broad-based improvement in the employment and income of self-employed workers and those in the services sector, which account for a significant share of the labour market.

“Such improvements will support the continued growth of private consumption.

“The expansion of merchandise exports is expected to moderate this year, then resume in 2024 in tandem with global growth, which is projected to bottom out in 2023.”

The MPC believes that the downside risks to the global economy have decreased as both advanced economies and China are showing an improving outlook. As a result, the central bank has increased its projection for foreign arrivals this year to 25.5 million, up from 22 million and the estimate for 2024 has been bumped up to 34 million, from 31.5 million.

“The committee also views headline inflation as likely to decrease as supply-side inflationary pressures continue to dissipate along with a fall in global energy and commodity prices.

“Core inflation is expected to remain at a high level for some time before gradually decreasing while medium-term inflation expectations remain anchored within the target range. However, there is a risk that core inflation will remain high for longer than expected because of a potential increase in pass-through given elevated costs.

“Moreover, the tourism recovery could increase demand-side inflationary pressures, which the committee plans to continue monitoring.”

The Commerce Ministry recently reported that headline inflation was 6.08% in 2022 on a year-on-year basis, primarily due to an increase in energy prices. The MPC stated that the baht has appreciated against the US dollar as a result of expectations of a less aggressive monetary tightening by the Federal Reserve and the relaxation of international travel restrictions in China, which would benefit the Thai tourism industry.

The MPC added that it will continue to monitor developments in the financial markets and foreign exchange volatility. As of now, the baht is 4-5% stronger than the dollar and 2% stronger compared to other currencies.

Piti stated that the global economy has displayed more positive signs since late last year.

He added that the US economy now has a higher likelihood of experiencing an “economic soft landing.”