Thai central bank focused on domestic outlook, sees continued recovery

THAI central bank officials said on Wednesday (Jun 14) the policy rate is not yet at a “neutral level” and that it would focus more on medium-term economic data.

“The committee will look at the impact in the future, medium-term orientation,” assistant governor Piti Disyatat said at an analysts’ meeting.

The central bank gives more importance to the Thai economic outlook than that of foreign economies, Piti said adding that South-east Asia’s second-largest economy continues to recover.

The monetary policy committee expected continued economic expansion with some upside risks as it raised the key interest rate last month for a sixth straight meeting, according to minutes of the meeting published on Wednesday.

The central bank began policy normalisation in mid-2022.

On May 31, the Bank of Thailand’s (BOT) policy committee voted unanimously to raise the one-day repurchase rate by a quarter point to 2.00 per cent, citing elevated core inflation.

“June inflation is expected to be close to the previous levels in May because due to a low base… and later this year demand-driven pressures will push up inflation,” senior director Surach Tanboon said.

Policy rate normalisation would be continued gradually and real interest rates should be positive, the minutes showed.

Despite multiple rate hikes, Thai interest rates remain low due to cuts during the pandemic. The central bank has pledged to gradually return them to normal levels consistent with long-term economic growth prospects.

The central bank minutes said the possibility of higher minimum wages could see pass-through of labour costs.

Despite annual headline inflation in May dropping below the central bank’s target range of 1 per cent to 3 per cent, the BOT still wanted policy tightening to continue to build more policy room, deputy governor Mathee Supapongse said last week.

The BOT forecast headline inflation at 2.5 per cent this year, with core inflation seen at 2.0 per cent.

Southeast Asia’s second-largest economy continued to recover and might expand more than expected, with exports set to improve, the BOT said after the May meeting.

The BOT maintained its economic growth forecasts at 3.6 per cent this year and 3.8 per cent next year. Last year’s growth was 2.6 per cent.

It slightly raised its forecasts for foreign tourist arrivals to 29 million this year and 35.5 million next year.

The BOT will next review policy on Aug 2, when some economists see a pause on rate hikes given falling inflation. REUTERS