Bank of Thailand predicted to raise policy rate to 2% this month

Economists anticipate that the Bank of Thailand will raise its policy rate to a terminal level of 2% this month, following their estimation that the Federal Reserve’s funds rate has reached its peak. The research centre of TMBThanachart Bank (ttb) suggests that the central bank’s Monetary Policy Committee (MPC) will increase the policy benchmark rate by 0.25 percentage points during the meeting set for May 31, raising it from the current 1.75%.

After this rate hike, ttb analytics predicts the central bank will maintain the rate unchanged for the rest of the year, focusing on financial stability amidst global uncertainties and high inflation rates. The country’s inflation rate has remained steady but is still at a high level which may experience a slight increase during the second half of the year due to recovering tourism.

For this year, ttb analytics forecasts core inflation at 101.5%, and headline inflation at 2.3%. Recently, the US Federal Reserve increased its policy rate by a quarter-point, significantly affecting capital and money markets globally. This hike in the policy rate is expected to have an impact on the Thai baht’s movement against the US dollar. The research centre believes that the baht will appreciate to 33.50 to the US dollar by mid-year.

Kasikorn Research Center (K-Research) also predicts a 0.25 percentage point increase in Thailand’s benchmark rate this month. Following this, the central bank is expected to observe the global economy and the heightened risks in the US financial industry before deciding on further policy rate movements. K-Research stated that the 0.25 percentage point increase in the Fed rate was expected.

The research house anticipates that the Fed’s increase to 5-5.25% will conclude its terminal rate for this cycle, which aligns with the Federal Open Market Committee’s outlook for the Fed’s funds rate on the dot plot chart. Published quarterly, the dot plot chart is monitored closely by investors and economists for indications of the future trajectory of the Fed’s funds rate.

K-Research predicts that the MPC will increase its policy benchmark rate by 0.25 percentage points this month. Nattaporn Triratanasirikul, Deputy Managing Director at K-Research, said that after the hike, the central bank is expected to monitor the global economy amidst various uncertainties and increased risks for the US financial industry before deciding on further policy rate movements.

Standard Chartered Bank also projects a hike of 0.25 percentage points, which the bank considers the terminal point for this interest rate cycle. Despite global uncertainties, Thailand’s strong economic indicators and the Bank of Thailand’s positive outlook for the economy are expected to support the continued normalisation of the policy rate in an effort to build policy space, according to Standard Chartered, reports Bangkok Post.