Written by Orathai Sriring and Kitiphong Thaichareon
BANGKOK (Reuters) – Thailand’s central bank modestly raised its key interest rate for a second consecutive meeting on Wednesday to stem a 14-year rise in inflation and said it was ready to adjust the size and timing of interest rate moves as necessary.
The Bank of Thailand (BOT) Monetary Policy Committee voted unanimously to increase the one-day repo rate by 25 basis points to 1.00%. The move was predicted by 22 out of 25 economists surveyed, with three predicting a half-point increase.
The BOT said monetary policy should be “normalized in a gradual and deliberate manner” as it stuck to the growth outlook for 2022, and said inflation had peaked, but also left the door open for further interest rate hikes if needed.
“The committee judges that the Thai economy will continue to recover, but with increased inflation risks,” it said in a statement.
“The committee is prepared to adjust the magnitude and timing of policy normalization if growth and inflation expectations shift from the current assessment.”
The recovery of Southeast Asia’s second-largest economy has lagged behind that of other countries as the vital tourism sector is just beginning to pick up, allowing the central bank to proceed slowly with rate hikes.
In sharp contrast, major central banks are embarking on the most aggressive round of interest rate hikes in decades to tame spiraling inflation, sparking fears in financial markets of a global recession.
The second rate hike in several months comes as inflation reached a 14-year high of 7.86% in August, well above the BOT’s target range of 1% to 3%.
The BOT said on Wednesday that headline inflation has peaked and will gradually decline later this year, returning to the target range in the second quarter of 2023.
It forecast inflation to reach 6.3% at the end of the year and 2.6% in 2023. That was slightly higher than previous forecasts of 6.2% and 2.5%, respectively.
“It is noteworthy that the BoT has left the door open for a change in the pace of its policy normalization. For our part, we believe that the external environment will increase pressure on the BoT to be more assertive with rate hikes, if it does not want to risk further currency declines,” ANZ analysts said in a note. .
The baht is down 12.8% against the dollar so far this year amid widespread selling in emerging market currencies as the US Federal Reserve continues a strong tightening cycle.
It extended its losses after the BOT decision and hovered near its lowest level in more than 16 years.
Petty said the economy is expected to return to pre-pandemic levels late this year or early next, echoing Governor Sethapot Suthiwartnaroipot’s view.
The BOT on Wednesday maintained its economic growth forecast for 2022 at 3.3% in June, and cut its growth forecast for 2023 to 3.8% from 4.2% for 2023. The economy grew 2.5% from the previous year in the April-June period.
“The central bank’s main challenge over the coming months will be to clamp down on inflation and support the currency, while not eliminating the recovery,” Capital Economics said in a note to clients.
“Overall, as the recovery continues and inflation and the currency become more worrying, we believe the central bank will need to accelerate the pace of tightening,” the central bank said, forecasting an increase of up to 1.75% by the end of this year.
Beattie said that while BOT’s focus will remain on tackling inflation, the BOT has been willing to act on excessive currency moves.
BOT expected 9.5 million tourists to arrive this year, and 21 million in 2023, greater than forecasts in June. It also forecast exports to grow 8.2% this year, up from 7.9% in June.