BENGALURU : The Bank of Thailand (BOT) is expected to raise its key interest rate by 25 basis points (bps) on Wednesday and then hold it at that level for the rest of this year and the next, marking an end to a modest tightening cycle, a Reuters poll found.
Unlike most economies in Southeast Asia, inflation in Thailand has already returned to the central bank’s target range of 1 per cent-3 per cent, and the commerce ministry expects it to ease sharply in May due to a high base in 2022 and lower fuel prices.
But Governor Sethaput Suthiwartnarueput said last month inflation risks remained and needed monitoring, suggesting the central bank’s policy moves will be data-dependent.
A strong majority of economists polled, 17 of 22, expected the BOT to raise its benchmark one-day repurchase rate by 25 bps to 2.00 per cent at its May 31 meeting. The remaining five forecast no change.
If the majority view prevails, interest rates will be twice as high as they were before the COVID pandemic.
“To make sure inflation doesn’t slip away…we expect the BOT to push through with what it telegraphed and hike its policy rate by 25 basis points to 2.00 per cent,” noted Aris Dacanay, ASEAN economist at HSBC.
“Considerable demand-side price pressures may emerge which can pose an upside risk to Thailand’s inflation outlook. At the centre of this is the expectation that Thailand will exhibit punchy growth figures in the remaining quarters of 2023.”
The BOT has so far raised rates by a total of 125 basis points since August, a much more modest pace than many of its global peers, as the recovery in Thailand’s tourism-reliant economy has lagged much of Southeast Asia.
Among economists who had a longer-term view on rates, 11 of 20 expected the BOT to maintain them at 2.00 per cent until at least end-year.
Of the remaining nine economists, five predicted rates would rise further to 2.25 per cent or higher by then, while four forecast no change next week and they would be held at 1.75 per cent till end 2023.
“Although we think the BOT will sound hawkish at the May meeting, the further drop in inflation suggests the scope for more hikes is narrowing fast,” wrote Charnon Boonnuch, economist at Nomura.
“We are more optimistic than the BOT on the economic recovery, as we think the tourism recovery will continue uninterrupted and exhibit more material improvement in H2 when the supply-side constraints ease further in Q2.”
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