BENGALURU : Thailand’s central bank will raise interest rates for the first time in around four years from a record low on Aug. 10 as the central bank shifts its focus from economic growth to rising inflation, a Reuters poll found.
High inflation, a global phenomenon from disrupted supply chains, has also affected Thailand and it has remained above the central bank’s target of 1-3 per cent since early 2022. It hit a 14-year high of 7.66 per cent in June from a year earlier and remained around that level in July.
But the Bank of Thailand (BOT) has so far kept its policy rates unchanged to foster economic growth although last month it signalled a gradual monetary policy tightening to combat inflation.
That shift was evident in June when calls for rate hikes grew louder and three of seven monetary policy members voted in favour of a rate hike.
“The BOT guidance was that with economic recovery improving on the back of faster return of tourists, the need for extra policy accommodation is lessening,” said Charnon Boonnuch of Nomura.
“So they are looking to normalize the policy by raising it gradually but not aggressively to make sure that the economic recovery is not derailed while addressing the risk to the inflation outlook.”
In the July 29-Aug 5 poll, 17 of 20 economists predicted the BOT would raise its policy rate by 25 basis points to 0.75 per cent on Wednesday from the record low it has maintained since May 2020.
Only three respondents predicted a 50 basis point hike.
A battered Thai baht which had tumbled around 8 per cent so far this year hasn’t helped the burgeoning price pressures.
“The depreciating Thai baht vs the U.S. dollar, partly driven by diverging monetary policies due to an aggressive Fed, could pose upside risks to Thailand’s imported inflation,” said Chua Han Teng, an economist at DBS.
“Foreign reserves have been deployed to blunt excessive currency volatility.”
The poll median showed the central bank would continue raising rates in small increments of 25 bps in the following meetings in Q3 and Q4 to 1.00 per cent and 1.25 per cent, respectively.
But there was a four way split among the 20 economists who had a view until end-2022. While eight expected interest rates to reach 1.00 per cent, eight predicted 1.25 per cent, two said 1.50 per cent, two saw the rate hitting 1.75 per cent.
“Some people expect a more aggressive move, calling for 50 basis points. We don’t think that’s the case. The recovery is still in the early stage…so demand pool pressure is still picking up but slowly,” noted Boonnuch.
“Given the global recession, the global demand for Thai goods exports could be weakening…we see resource export growth turning negative in 2023 on the back of those risks.”
Meanwhile, tourism in the country, an important revenue generator, was seen recovering quicker than earlier predicted yet still remains below pre-pandemic levels.
The central bank expects foreign tourist arrivals for this year at 6 million, revised up from 5.6 million previously.
“The Thai economy has become a “one-trick” pony, heavily reliant on foreign tourism…Policymakers would find it hard to stoke demand if tourist arrivals falter,” said Kobsidthi Silpachai, economist at Kasikornbank.
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