Thailand Central Bank To Further Raise Interest Rate By 25 Points

Thailand's central bank boosted interest rates by 25 basis points on Wednesday in an effort to bring inflation back into goal while the economy continues to rebound despite mounting global headwinds.

At the fifth consecutive meeting, the Bank of Thailand's (BOT) monetary policy committee voted unanimously to raise the one-day repurchase rate to 1.75 percent, as forecast by 18 of 22 analysts polled by Reuters.

The BOT reduced its growth predictions for this year and next, citing greater global uncertainty, but predicted that the tourist sector's resilience would mitigate the impact of any worldwide recession. While it reduced its headline inflation prediction for this year, it raised its expectation for 2024.

"The economy has good momentum while inflation, albeit easing, remains higher than that in the past ... so (rate) normalisation will have to continue," Assistant Governor Piti Disyatat told a news conference.

"Our task going forward is to ensure that the economic recovery is stable," he added.

Piti believes that the May 14 election will have little influence on the economy or inflation.

Kasikornbank's head of capital markets research, Kobsidthi Silpachai, said the BOT's press conference emphasised inflationary risk, "which is likely to be passed on to consumers as tourism aids the economy's recovery."

The BOT has hiked its key rate by 125 basis points since August, which is less aggressive than many of its regional rivals.

The latest move was made "gradually and measuredly towards a level consistent with long-term sustainable growth," according to the BOT, which added that it was ready to revise the amount and timing of rate increases if the growth and inflation projections changed.

In February, headline inflation fell to a 13-month low of 3.79 percent, although it remained above the BOT's target range of 1% to 3%. The central bank trimmed its projection for 2023 to 2.9 percent from 3.0 percent on Wednesday, saying headline inflation would return to goal by the middle of this year.

The BOT reduced its economic growth expectations for this year and next year to 3.6% and 3.8%, respectively, from 3.7% and 3.9% before, with a robust resurgence in tourism serving as the primary engine.

Southeast Asia's second-largest economy grew by 2.6 percent last year, despite the fact that its tourist sector was still in its infancy.

The central bank anticipates 28 million international arrivals this year and 35 million in 2024, up from prior estimates of 25.5 million and 34 million, respectively, and indicated those figures may rise even higher. This is in comparison to approximately 40 million in pre-pandemic 2019.

Exports, another crucial engine of development, have underperformed, and the BOT has identified vulnerabilities including as prolonged inflationary pressure and financial problems in advanced nations.

At 1006 GMT, the baht was up 0.4% to 34.14 per dollar.

Exports are expected to fall 0.7% this year and climb 4.3% in 2024, according to the BOT. It had earlier predicted export growth of 1% in 2023 and 2.6% in 2024.

Standard Chartered Bank analyst Tim Leelahaphan predicts a final 25 basis point walk at the next meeting on May 31.

"We acknowledge global uncertainty, but given Thailand’s robust economic indicators and the BOT's positive outlook on the economy, we expect continued policy normalisation in an effort to build policy space."