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Bank of Thailand Hikes Benchmark Policy Rate By 25 Basis Points

Published

2 years ago

August 12, 2022

Bank of Thailand Raises Benchmark Policy Rate

The Bank of Thailand raised the benchmark policy rate for the first time in more than three years. This signalling it would stick with measured moves going forward to fight inflation without derailing the economy’s recovery.

On Wednesday, the bank’s monetary policy committee decided to increase the one-day repurchase rate by 25 basis points to 0.75%, as forecast by 24 of 27 economists in a Bloomberg survey. The remaining three had predicted a 50-basis-point hike. The rate was last increased in December 2018.

According to the Bank of Thailand, the policy rate should be normalized to a level that is consistent with sustainable growth. “Normalizing monetary policy should be gradually and measuredly following growth and inflation outlooks.”

The Central Bank raised rates Wednesday in response to months of discussion about raising them sooner rather than waiting until inflation rises above the target.

Read: Bank of Thailand Monitors Bahts Volatility

In a statement made on Monday, Thailand’s Finance Minister Arkhom Termpittayapaisith stressed the need to preserve growth, putting the Kingdom on a slightly different path from peers Philippines and India. Both raised their policy rates by more than 100 basis points in response to the US Fed tightening.

Thailand’s government forecasts gross domestic product expanding 3.3% this year, in line with the Bank of Thailand’s forecast in June. The pace of expansion is predicted to be among the slowest in Southeast Asia in 2022.

Thailand’s economy is expected to return to the pre-COVID-19 level by December 2022 and will continue to gain traction as foreign tourists return, the Central Bank reported, while flagging risks to recovery from rising living costs.

Last month’s headline inflation rate of 7.61% was slightly lower than June’s 7.66%, but it still exceeded the central bank’s 1%-3% target. Core prices rose almost 3% in July, up from 2.51% in June, excluding volatile food and fuel items.

As far as inflation is concerned, it will remain high throughout 2022, largely unchanged from the previous forecast. The Central Bank said it will slowly decline into the target range in 2023 without providing any details.