TL;DR Breakdown
- Thailand’s central bank has significantly increased its key interest rate to 2.25%, reaching the highest level in nine years.
- The central bank maintains its focus on ensuring inflation remains within the target range of 1%-3%
- Despite political unrest, Thailand’s economy is expected to grow by 3.6% this year.
Description
Thailand’s central bank has significantly increased its key interest rate, reaching the highest level in nine years. However, alongside this move, there are indications that the bank might be approaching the conclusion of its tightening measures. The Monetary Policy Committee of the Bank of Thailand voted to raise the one-day repurchase rate by 25 basis … Read more
Thailand’s central bank has significantly increased its key interest rate, reaching the highest level in nine years. However, alongside this move, there are indications that the bank might be approaching the conclusion of its tightening measures. The Monetary Policy Committee of the Bank of Thailand voted to raise the one-day repurchase rate by 25 basis points to 2.25%, in line with widespread expectations. The policy statement’s wording strongly suggests that they are now close to concluding their efforts to raise borrowing costs.
Thailand focuses on maintaining inflation between 1% – 3%
The Bank of Thailand (BOT) had abandoned its consistent reference to the need for “gradual and measured” rate adjustments, a move that had been used since mid-2022 when the rate hikes began. The central bank maintains its focus on ensuring inflation remains within the target range of 1%-3%, with 175 basis points of rate increases already implemented, even though it is currently below that range. However, Assistant Governor Piti Disyatat pointed out that overall financial conditions have become less accommodative, suggesting a shift in their approach.
The BOT stated that its monetary policy aims to sustainably maintain inflation within the target range while emphasizing the importance of long-term financial stability. The future course of additional rate adjustments, it said, will depend on the economic and inflation outlook, as well as the assessment of risks.
Disyatat mentioned that in light of the ongoing economic growth and the narrowing of slack, monetary policy must sustainably maintain inflation within the target range. In addition, it should promote long-term macro-financial stability by proactively addressing the potential emergence of financial imbalances in a prolonged low-interest rate environment.
Thailand’s economy predicted to grow 3.6%
Thailand is facing a political stalemate that has prolonged for over two months since the election, leading to a scheduled parliamentary meeting on August 4 to select a new prime minister. Despite this uncertainty, the country’s economy, the second-largest in Southeast Asia, is showing signs of recovery driven by the rebound in tourism after the pandemic. However, the global demand slowdown has affected exports.
Following the May 14 general election, the committee responsible for economic matters acknowledged that the inflation situation would be influenced by the policies of the newly elected government. The two winning parties, Move Forward and Pheu Thai, had campaigned to increase the minimum wage. The central bank cautioned that such wage hikes could lead to higher inflationary pressures in the economy.
According to the central bank’s May forecast, Thailand’s economy is expected to grow 3.6% this year and 3.8% next year, with last year’s growth recorded at 2.6%. The bank also predicts 29 million foreign tourist arrivals in 2023 and 35.5 million in 2024, though these figures are still below the pre-pandemic level of nearly 40 million visitors in 2019.
Inflation has been relatively low, with the annual headline inflation rate at 0.23% in June, falling below the Bank of Thailand’s target range of 1% to 3%. The BOT’s Governor, Sethaput Suthiwartnarueput, has expressed confidence that inflation would return to within the target range as the economy expands. The core inflation rate, at 1.32% in June, has been higher due to increased demand pressures from economic growth and the pass-through of higher costs.
Throughout this year, the baht, Thailand’s local currency, has experienced considerable volatility, primarily influenced by fluctuations in the US dollar. The baht has appreciated more than 3% in the past month alone. Suthiwartnarueput previously attributed the baht’s strength to two main factors: the depreciation of the US dollar and favorable domestic political sentiment. Furthermore, increased foreign tourist arrivals and a current account surplus support the baht’s positive outlook.
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