Thailand: BoT keeps measured approach on monetary policy tactics

The Bank of Thailand plans to maintain a gradual approach to normalising monetary policy throughout this year, according to its chief.

The central bank’s key objective is to contain inflation, even amid an uneven economic recovery, as the inflation rate is expected to remain high this year, Bank of Thailand governor Sethaput Suthiwartnarueput said at the Thailand Focus 2022 seminar hosted by the Stock Exchange of Thailand on Wednesday.

The central bank’s Monetary Policy Committee (MPC) has two more meetings scheduled this year, in September and November.

Earlier this month the MPC raised the policy benchmark rate by 25 basis points to 0.75%, the first time in almost four years the committee has hiked the rate. The move was made to control elevated inflation, according to the committee.

Even though commercial banks have yet to raise their prime interest rates after the MPC’s rate hike, market rates will be normalised in accordance with the policy rate normalisation, Mr Sethaput said.

In a normal economic situation, if the policy rate moves, market rates will follow suit immediately. However, amid the current uneven economic rebound, banks will focus first on taking care of vulnerable customer segments, helping them weather the difficult situation, he said.

Vulnerable customer segments include small and medium-sized enterprises (SMEs) and low-income households still reeling from the impact of the prolonged pandemic.

Mr Sethaput said amid the uneven economic recovery, Thailand’s banking sector shows positive loan growth, compared with both the previous period and other regional countries.

The central bank wants financial institutions to support liquidity for fragile SMEs to help them survive this difficult period, he said. The Bank of Thailand can also adjust its monetary policy, in line with the economic situation, said Mr Sethaput.

However, he said Thailand’s rising inflation rate has been pressured by the supply side, while the demand side has been showing low pressure, creating a different situation from other countries.

Mr Sethaput said Thailand’s economic recovery remains intact, mainly supported by the tourism sector. For the first seven months this year, foreign tourism arrivals reached 3.6 million and the number could exceed 8 million in 2022, higher than the central bank’s forecast of 6.7 million.

Domestic demand, private consumption and higher income for both farm and non-farm households have facilitated the country’s economic rebound, according to the bank.

For the second quarter, the private consumption growth rate was 6.9%, rising from 3.5% in the previous quarter. Farm and non-farm income doubled in the same period.

However, the GDP growth rate for the second quarter was 2.5%, lower than the central bank’s outlook. The lower rate was attributed to inventory decline, but the situation is expected to improve in the second half, he said.

The central bank is reviewing its 2022 economic growth assessment of 3.3%, said Mr Sethaput.

Despite tourism being a key support factor driving economic growth this year, it is also a risk factor. If the number of foreign arrivals is lower than projected, it would dampen the economic growth rate, he said.

Global inflationary pressure and geopolitical factors could affect tourists visiting Thailand, but such factors are not key concerns, said Mr Sethaput.