Bank of Thailand to hold rate at 2.5% amid rising inflation

The Bank of Thailand is expected to maintain the policy rate at 2.5% during its upcoming meeting, influenced by the gradual rise in inflation back to the target range. Economists are advocating for additional government stimulus measures, alongside the digital wallet scheme, to boost the sluggish economy.

Headline inflation increased to 0.8% last month, surpassing the consensus forecast of 0.7% and the 0.6% rise in June. This indicates that price increases are approaching the central bank’s target range of 1-3%, as noted by Maybank, based in Kuala Lumpur.

Core inflation also saw an uptick, reaching 0.5% from 0.4% in June, marking the highest level in six months, according to Erica Tay, Director of Macro Research at Maybank.

“The government may roll back subsidies for electricity in the second half of 2024, which would put upward pressure on headline inflation. We expect the consumer price index (CPI) to average 0.9% in 2024, before rising to 1.8% next year.”

The central bank observed that “consumer confidence continued to decline due to concerns over higher living costs stemming from rising energy prices, as well as concerns about the sluggish rebound of the Thai economy.”

Tourism remains a critical driver of the economy, with tourist arrivals reaching 21 million year-to-date, reflecting a 33% year-on-year increase, Tay said.

Rate cut

“With the CPI slowly rising back to the target range, and with public spending projected to increase strongly in the latter half, the Bank of Thailand will be less inclined to ease its policy rate at its meeting on August 21.”

Maybank anticipates a rate cut of 0.25 percentage points to 2.25% next year and maintains its GDP growth forecast of 2.4% for this year and 2.8% for 2025, Bangkok Post reported.

Bank of America (BoA) noted that Thailand’s CPI in July was consistent with its expectations but higher than the consensus forecast of 0.7% due to rising oil and food prices. For the first seven months of 2024, headline inflation remained low at 0.12%, said BoA emerging Asia economist Pipat Luengnaruemitchai.

“Thai inflation remains relatively low year-on-year compared with regional countries.

“We anticipate a slight decrease in August because of the base effect and a slowdown in some food prices. However, inflation is expected to rise above 1% in the fourth quarter driven by last year’s low base for energy prices. The current inflation trend is in line with the forecast by the Monetary Policy Committee (MPC). We do not expect this month’s inflation to change the MPC’s policy stance.”

Nattaphon Khamthakruea, Director of the Securities Analysis Department at Yuanta Securities, and Amonthep Chawla, Chief Economist of CIMB Thai Bank, expressed concerns about economic growth potentially falling below 2% this year, especially if the Constitutional Court does not rule in favour of Prime Minister Srettha Thavisin today, said Amonthep.

“Second-quarter GDP growth is likely to be below 2%. We hope more stimulus, particularly quick-win measures, can stimulate the economy.”