Bank of Thailand continues interest rate normalisation amid new government

Bank of Thailand deputy governor Mathee Supapongse, Image courtesy of National News Bureau of Thailand

The Bank of Thailand has stated that the formation of a new government will not impact its decision to raise interest rates further. The central bank’s deputy governor, Mathee Supapongse, emphasised the need for the bank to maintain a separate view from elected officials, with the aim of continuing to normalise interest rates.

“Despite recent increases, Thai interest rates are still considered low due to cuts during the Covid pandemic. The central bank has pledged to gradually return them to normal levels consistent with long-term economic growth prospects.”

Mathee explained that while the policies of political parties generally focus on stimulating the economy, the effects of monetary policy take time to manifest. He added that the Thai economy is recovering and is expected to reach its potential growth level next year.

Last week, the Bank of Thailand raised its key interest rate by a quarter point to 2.00%, citing elevated core inflation. The rate has increased by a total of 150 basis points since August of last year. The central bank is set to review policy on August 2, with some economists predicting a rate pause due to falling inflation.

Annual headline inflation in May dropped to its lowest in 21 months at 0.5%, below the central bank’s target range of 1% to 3%. However, core inflation stood at 1.55%. Mathee stated that the below-target inflation was temporary, and this year’s average figure should remain within the target range.

The Bank of Thailand is prepared to adjust the pace and timing of policy normalisation if the outlook for growth and inflation changes. It currently forecasts average headline inflation at 2.5% this year and 2.4% next year, with economic growth projections of 3.6% for this year and 3.8% for next year. The Thai economy expanded by 2.6% in 2022, reports Bangkok Post.

Due to the Bank of Thailand’s increase in the policy rate, state banks, including the Government Savings Bank (GSB) and the Bank for Agriculture and Agricultural Cooperatives, have also raised their interest rates for loans and deposits in which the deposit rates exceed the loan rates. For more information, click the LINK to read more.

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