The Bank of Thailand announced a 25 basis point increase in its key interest rate, bringing it to 2%. This marks the sixth consecutive meeting where the central bank has raised the rate, with a total increase of 150 basis points since August last year. The decision was unanimous among the Monetary Policy Committee members and in line with the expectations of 17 out of the 22 economists surveyed by Reuters.
The rate hike aims to address inflation risks as the nation’s economic recovery gains momentum amidst global uncertainties. Analysts at ttb analytics, TMBThanachart Bank’s research unit, believe that the central bank will maintain the current rate for the rest of the year, focusing on financial stability in the face of global uncertainties and high inflation rates.
Inflation in April stood at 2.7% year-on-year, a slight decrease from 2.8% in March and the lowest rate since December 2021. Despite the easing of headline inflation, policymakers have emphasised the importance of keeping price gains under control over time.
Key risks include increased consumption driven by a tourism-led recovery in economic activity and potential higher spending by the new government following the May 14 General election. The latest rate adjustment will reduce the real interest rate to negative 0.67% from 0.92% previously, making it Southeast Asia’s lowest after accounting for prices.
Over the past month, the baht has weakened by approximately 1.5%, and foreign investors have become net sellers of local bonds and stocks due to concerns about potential delays in forming a new government, which could impact budget spending and investment.
In addition, the Bank of Thailand revealed that the country recorded a current account deficit of US$500 million in April, following a surplus of US$4.8 billion in the previous month. Exports, a crucial driver of growth, contracted 4.9% year-on-year in April, according to the central bank’s statement.
The Ministry of Commerce reported that the customs-cleared dollar value of exports in the first four months of 2023 decreased by 5.2% year-on-year to US$92 billion. Imports fell by 2.2% to US$96.5 billion, resulting in a trade deficit of US$4.51 billion, reported Bangkok Post.
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