BANGKOK: Thailand’s central bank raised its key interest rate modestly for a second straight meeting on Wednesday (Sep 28) to tame 14-year high inflation and ensure a continued economic recovery, while maintaining its 2022 growth projection of 3.3 per cent.
The Bank of Thailand’s (BOT), among Asia’s less hawkish central banks, said in a statement the policy rate should be normalised gradually, but indicated it was ready to respond with a bigger rate increases if necessary.
The recovery of Southeast Asia’s second-largest economy has lagged that of other countries as its vital tourism sector has just started to rebound while investment remains sluggish, allowing the central bank to go slowly on rate hikes, despite bigger increases by many peers.
The BOT’s monetary policy committee, voted unanimously to increase the one-day repurchase rate by 25 basis points to 1.00 per cent.
Of 25 economists surveyed by Reuters, 22 had expected a quarter-point hike and three predicted a half-point increase. The BOT delivered a similar rise in August, which was the first rate increase in nearly four years.
“The committee judges that the Thai economy will continue to recover but with increased inflation risks. The policy rate should be normalised in a gradual and measured manner to the level that is consistent with sustainable growth in the long term,” it said in the statement.
“The committee is ready to adjust the size and timing of policy normalisation should the growth and inflation outlook shift from the current assessment.”
It maintained its 2022 economic growth outlook of 3.3 per cent seen in June, and trimmed its 2023 growth forecast to 3.8 per cent from 4.2 per cent for 2023.
The BOT raised its 2022 headline inflation forecast to 6.3 per cent from 6.2 per cent seen earlier, and its 2023 estimate to 2.6 per cent from 2.5 per cent.
The baht currency extended losses after the BOT’s rate hike was announced and was last down 0.8 per cent.
Earlier this month, Governor Sethaput Suthiwartnarueput said the BOT’s goal was to ensure a smooth recovery for the economy, which he expected to return to its pre-pandemic level by late this year or early next.
In the April-June period, the economy grew 2.5 per cent from a year earlier and 0.7 per cent from the previous three months.
Last year’s economic growth of 1.5 per cent was among the lowest in Southeast Asia.
Headline inflation was 7.86 per cent in August, a 14-year high, and far above the BOT’s target range of 1 per cent to 3 per cent.
The BOT on Wednesday said the baht weakness was not affecting the overall economy and inflation would start falling gradually late this year and return to the target range next year.
It also forecast tourist arrivals of 9.5 million for this year, and more than doubling to 21 million in 2023, bigger than the projections made in June.
It also forecast exports to grow 8.2 per cent this year, up from the 7.9 per cent seen in June.