Bank of Thailand raised its interest rate by a quarter point at its January meeting on Wednesday, as expected, and policymakers signaled more hikes in future after they assessed that a tight monetary policy is still required to bring down inflation to the target range amid an on-going recovery in the economy that is driven by a rebound in the tourism sector on the return of Chinese tourists.
The Monetary Policy Committee of the Bank of Thailand unanimously decided to raise the policy rate by 0.25 percentage points to 1.50 percent from 1.25 percent, as widely expected.
“The policy rate should be normalized to the level that is consistent with sustainable growth in the long term in a gradual and measured manner,” the central bank said in a statement.
“The Committee is ready to adjust the size and timing of policy normalization should the growth and inflation outlook shift from the current assessment.”
The latest move was the fourth rate hike in a row, and the current level of the key rate was the highest since September 2019.
Read more: Thailand Manufacturing Gains Strength On Robust Output Growth
The central bank expects headline inflation to decline in the near future as food and energy price growth continue to ease, whereas core inflation is seen holding at a high level with increased risks from demand-side inflationary pressures due to the economic recovery.
Policymakers will continue to closely monitor risks to inflation as core inflation could remain high for longer than expected owing to a potential increase in pass-through given elevated costs. Further, the tourism recovery could increase demand-side inflationary pressures.
Exports are projected to slow down this year, but are expected to improve in 2024 in line with the global economic recovery, the bank said.
Recent data showed that Thailand’s underlying inflation rate held steady at 3.2 percent in December, which was the highest in 14 years. That was also above the central bank’s target range of 1 to 3 percent.
Headline inflation for December was 5.9 percent, slower than the 7.9 percent peak reached in August.
The Thai economy is projected to continue growing on the back of a faster recovery in the tourism sector, thanks to the return of Chinese tourists after easing the pandemic restrictions in their country.
This will boost employment and income for the service sector and support the continued expansion of private consumption, the bank said.
“Looking ahead, the BoT started raising interest rates later than other countries in the region, and we still think the central bank’s tightening cycle has a little further to go,” Gareth Leather, a senior economist at Capital Economics said.
The relatively hawkish language in the latest policy statement supports this view, the economist added. Capital Economics forecast Thailand interest rates to peak at 1.75 percent.
Read more: ADB Cuts Developing Asia Growth Outlook Again
Source: Read Full Article