By Anant Chandak
BENGALURU (Reuters) – The Bank of Thailand will deliver another 25 basis point interest rate hike on Wednesday, its second in a row, a Reuters poll showed on Monday, even as many of its peers opt for bigger increases to fight high inflation.
Although inflation in Thailand jumped to a 14-year high in August, the recovery in Southeast Asia’s second-largest economy has lagged behind that in other countries as the vital tourism sector struggles to recover, prompting the BOT to move slowly in Raising interest rates.
Bank of England Governor Sithabut Suthiwartnaroiput said earlier this month that the central bank’s rate increases would be gradual and measured to ensure a smooth recovery of the economy, which is expected to return to pre-pandemic levels late this year or early next.
Its bid matched the majority expectations in a Reuters poll of economists conducted Sept. 19-26.
About 22 of the 25 economists surveyed, or nearly 90%, expected the BOT to raise its standard one-day repo rate by 25 basis points to 1.00% at its September 28 meeting, where it was before the COVID-19 pandemic.
Only three expected a larger increase of 50 basis points.
“Policy tightening is slower than in other countries, but consistent with the still weak domestic economic recovery, given Thailand’s reliance on incoming tourists,” said Charnon Bonoch, an economist at Nomura.
“Due to the sharp drop in energy prices and the recent drop in inflation expectations, we see no need for the BOT to be aggressive in raising its policy rate.”
The US Federal Reserve, which made its third consecutive hike of 75 basis points last week, was expected to continue aggressive rate hikes, triggering a new two-decade high and putting more downward pressure on the Thai baht.
The baht is down about 11% this year, reaching its lowest level in nearly 16 years on Wednesday. A weaker currency keeps imports expensive and leads to higher inflation.
While exports and tourism benefit from a weak local currency, sticky inflation is eroding real income and exacerbating inequality and poverty, a major issue for the government ahead of general elections due in May.
Despite these concerns, the survey’s economists expected the BOT to continue on its hiking trail next year in small increases of 25 basis points, bringing the rate to 2.00% by the end of 2023.
However, forecasts for the end of 2023 ranged between 1.00% and 2.50%, indicating uncertainty about the direction of policy.
“Diminishing stocks of ammunition to protect their currencies will put Asian central banks under pressure to conduct a deeper tightening cycle, but this may come at the cost of slower growth,” said Crystal Tan, an economist at ANZ Bank.
Tan, who forecast a 50bp hike in September and November, added, “It is worth noting that the central banks of Indonesia and the Philippines raised interest rates by 50bp last week, and we expect their counterparts in Thailand to follow…the meetings.