(CTN News) – Bank of Thailand (BoT) is gearing up to implement a final 25-basis-point interest rate increase on August 2, responding to the current high and uncertain inflation outlook.
This decision comes after June’s annual headline inflation eased to 0.23%, below the Bank of Thailand BoT’s target range of 1%-3%, suggesting an anticipated price rebound later in the year. As a result, the Bank of Thailand is continuing its cycle of fiscal tightening.
Governor Sethaput Suthiwartnarueput remarked that the current inflation outlook aligns with expectations, prompting the monetary policy to pivot towards future predictions rather than relying solely on current data.
In line with this shift, economists from a recent Reuters poll now predict another rate hike instead of their earlier anticipation of the tightening cycle ending in May.
Of 22 economists, 18 foresee a 25-basis-point increase in the benchmark one-day repurchase rate to 2.25% on August 2. This would mark the highest rate since January 2014, with the remaining four economists predicting no change.
Barclays economist Shreya Sodhani believes that the bank will raise rates in August, viewing it as the final hike, but also acknowledges the possibility of another increase in September.
She suggests that the hikes are driven by concerns over financial stability and the need to build policy space, alongside the MPC’s highlighting inflation risks as growth and tourism recover.
Bank of Thailand’s Continued Economic Growth Expectations
According to the poll, inflation is expected to average 1.8% this year and 1.9% in 2024, remaining within the BoT’s target range. Among economists providing a long-term outlook, 13 out of 17 foresee the Bank of Thailand maintaining the 2.25% interest rate until mid-2024 at least, while only two predict a rate cut, and another two believe it could peak at 2.50%.
The trajectory of interest rates will be influenced by factors such as inflation trends, the Covid-19 pandemic recovery, and tourism growth amid ongoing political tensions within Thailand. Any delays in forming the upcoming government could hinder economic confidence, with the economy projected to grow at 3.7% this year and 3.8% the following year.
ANZ economist Krystal Tan highlights the volatile political environment as a potential roadblock that could prompt the Bank of Thailand to hold off on further rate hikes if significant developments threaten economic recovery.
In recently released minutes from the BoT’s Monetary Policy Committee, it is evident that the bank expects sustained economic growth, although they acknowledge potential risks, which prompted the sixth consecutive key Thai interest rate hike.