Thailand: BoT hikes policy rate as recovery gathers steam
The Bank of Thailand believes the country’s economy will take off in the final quarter of this year and return to pre-pandemic growth levels.
As a consequence, the central bank increased its policy rate by a quarter-point despite mounting pressure from a projected global economic slowdown.
The Monetary Policy Committee (MPC) on Wednesday voted unanimously to raise the policy rate by another 25 basis points, from 1% to 1.25%, effective immediately.
The hike comes as the Thai economic recovery continues to gain traction, supported mainly by tourism and domestic consumption, said MPC secretary Piti Disyatat.
Mr Piti said the Thai economy is projected to grow by 3.2% in 2022, 3.7% in 2023 and 3.9% in 2024. The central bank cut the growth outlook slightly for 2022 and 2023 from a previous assessment of 3.3% and 3.8%, respectively.
The downgrade was mostly attributed to the likelihood of a global economic slowdown, which could be more serious than previously forecast, according to the MPC.
However, he said the tourism sector is expected to strengthen as the number of foreign visitors keeps rising. For the past few months, daily foreign tourist arrivals have exceeded the central bank’s projections.
In addition, private consumption has been supported by improving economic activities, as well as a broad-based recovery in employment and labour income, according to the MPC.
“The trajectory of Thai economic growth remains largely unchanged for 2023 and 2024 as the strength of the tourism sector and private consumption will help lessen the impact of the global slowdown on the Thai export sector,” said Mr Piti.
The central bank upgraded its 2022 foreign tourist arrival projections from 9.5 million to 10.5 million, and for 2023 to 22 million, up from 21 million.
Headline inflation is expected to average 6.3% in 2022 and peak in the third quarter, before declining to 3.0% in 2023 and 2.1% in 2024, said the MPC.
Headline inflation is expected to be higher than previously assessed at 2.6% for 2023 based on the upward adjustment of electricity fees. However, headline inflation is expected to return to the target range of 1-3% by the third quarter of 2023, said the committee.
The central bank’s core inflation projection is close to its previous forecast of 2.6% in 2022, 2.5% in 2023 and 2% in 2024.
The MPC will continue to monitor inflation risks, especially a potential increase in cost pass-through and domestic prices, which remain uncertain.
The central bank announced that for October, the Thai economy remained on the recovery path, despite downgrade pressure from lower merchandise exports.
In October the value of merchandise exports, excluding gold and after seasonal adjustments, contracted 6.1%, compared with a growth rate of 3.3% in the previous month, mainly attributed to lower exports of manufacturing products.
However, the Thai economy continued to rebound in October, mainly driven by domestic consumption and the tourism sector.
In October, foreign tourist arrivals increased to 1.47 million, rising from 1.3 million in September, a figure that exceeded the central bank’s forecast.