Bank of Thailand Warns Over Inflation as Baht Declines

The Bank of Thailand reports the economy faces accelerated inflation if the baht continues to fall. The Central Bank reports Thailand’s inflation is already at a 14-year high.

According to a Bank of Thailand (BoT) presentation to analysts on Monday, approximately 75% of imports are quoted in dollars, with the remainder in sellers’ local currencies.

Given the pass-through cost, monetary officials indicated they actively watch the exchange rate in this regard.

The baht has emerged as Southeast Asia’s worst-performing currency in the second half, falling 7% and reaching a 16-year low. Nonetheless, the BoT has only hiked its policy rate by 50 basis points and is sticking to its gradual tightening strategy as the “right course.”

“The Bank of Thailand’s monetary policy will continue to promote continuing economic growth, and the central bank will avoid increasing uncertainty,” Assistant Governor Piti Disyatat told analysts.

Mr. Piti stated that the central bank would not try to restrict economic growth to reduce inflation because price increases are caused by greater costs rather than increased demand.

Bank of Thailand to Hike Rates Gradually

He also stated that the country’s foreign currency reserves are strong enough to withstand capital flows, and the decline in stocks is attributable to asset revaluation versus a stronger US dollar.

The central bank also forecasts 9.5 million foreign tourist arrivals this year and 21 million next year, up from 428,000 last year.

According to the BoT, Thailand’s economy will continue to recover this year and in 2023, and gradual interest rate hikes remain appropriate. However, the policy can be changed if the outlook deviates from expectations.

In an analysts’ meeting statement, the BoT forecasts 3.3% growth this year and 3.8% next year.

The BoT hiked its key interest rate by a quarter point to 1.00% last month to combat inflation. It will review the policy again on November 30, when economists anticipate another raise.

The BoT stated that economic risks were balanced and that monetary policy would support an economic rebound without increasing inflationary pressures.

According to the BoT, inflation will gradually reduce in the fourth quarter of this year.

A revival in the essential tourist sector would be critical to the recovery of Southeast Asia’s second-largest economy, which expanded at the region’s slowest rate of 1.5% last year.