Thailand central bank raises policy rate, reduces 2023 GDP forecast
Following the Bank of Thailand‘s decision to increase its policy rate and reduce the GDP forecast for 2023, the bank’s governor, Sethaput Suthiwartnarueput, will meet Prime Minister Srettha Thavisin. Sethaput did not disclose the specifics of the meeting’s agenda, scheduled for Monday, but assured readiness to address any queries.
Contrary to circulating rumours, the 61 year old prime minister, who also serves as the finance minister, confirmed he had no intentions of dismissing Governor Sethaput. The latter had previously expressed criticism over the government’s digital wallet scheme involving 10,000 baht.
The Monetary Policy Committee (MPC) of the Bank of Thailand, in a meeting held on Wednesday, decided to hike the benchmark interest rate by a quarter-point to 2.5%, marking the highest level in a decade. Additionally, the committee slashed the growth forecast for 2023 from 3.6% to 2.8%, albeit raising the outlook for the following year from 3.8% to 4.4%.
Sethaput explained that the MPC’s decision to increase the rate was based on a long-term outlook-dependent approach rather than short-term data. The central bank maintains an optimistic stance on the nation’s economic recovery, attributing it to tourism and private consumption, despite lower-than-anticipated foreign arrivals in the second quarter.
“The current policy rate was close to a neutral level, in line with our assessment, and we will maintain the policy rate at the existing level for a while.”
He also highlighted that considering Thailand’s economic situation, both the policy rate of 2.5% and the 10-year government bond yield are the lowest in the region.
The central bank’s policy rate stands lower than several other countries in the region, such as Indonesia at 5.75%, Malaysia at 3% and the Philippines at 6.25%.
The MPC expects a headline inflation of 1.6% for this year and 2.6% for the next. It predicts that inflation will remain within the bank’s target range of 1-3% over the long term. The committee emphasises that financial stability is a crucial determinant in making monetary policy decisions.
Sethaput notes the increasing financial volatility due to rising bond yields and baht depreciation against the US dollar, attributing it to both internal and external factors. He compared the baht’s volatility against the dollar to that of the Japanese yen and the South Korean won, which are typically more volatile compared with the dollar than other regional currencies.
The year-to-date net foreign fund outflows were US$8.8 billion, encompassing both equity and bond markets. However, Sethaput clarified that such outflows and inflows do not influence the MPC’s policy rate considerations, reports Bangkok Post.
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