Bank of Thailand likely to hike rates amid inflation concerns

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Inflation concerns prompt predictions of further Bank of Thailand rate hikes this year, as the nation’s economy recovers. Siam Commercial Bank’s research unit, SCB Economic Intelligence Center (EIC), anticipates the central bank’s Monetary Policy Committee (MPC) will increase its policy benchmark rate by a quarter percentage point in both August and September, bringing it to 2.5% from the current 2%.

SCB EIC stated that although the inflation rate is within the central bank’s target range of 1-3%, there remains an upside risk to inflation. As the tourism sector recovers, inflationary pressure from the demand side is expected to rise, with business operators likely to pass on higher costs to consumers throughout the year.

In contrast, Krungthai Compass, a research house under Krungthai Bank, predicts the MPC will maintain its policy rate unchanged at the August meeting, with a hike to 2.25% later in the year following the formation of a new government. Krungthai Compass said…

“If a new government can be formed smoothly, the central bank will increase its policy rate by 0.25 percentage points to curb the inflation rate.”

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The research house also noted that if the new government implements economic stimulus measures, it would increase the upside risk to inflation, even though the rate has been declining as most prices have stabilised or declined.

The Bank of Thailand forecasts headline inflation of 2.5% in 2023, dipping to 2.4% in 2024. However, the core inflation rate is expected to remain steady at 2% in both 2023 and 2024. As a result, the central bank is expected to pay more attention to containing core inflation, which represents 67.1% of the inflation basket, leading to continued interest rate hikes, according to Krungthai Compass.

On Wednesday, the MPC decided to hike its policy rate by 0.25 percentage points to 2% with immediate effect. Following this decision, Bangkok Bank, the country’s largest lender by total assets, announced on Thursday that it would increase its saving account interest rates by 0.05-0.25% while lifting its loan interest rates by 0.2%. The bank’s minimum lending rate is currently 6.85% per year, the minimum overdraft rate is 7.3%, and the minimum retail rate is 7.05%, reported Bangkok Post.

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