Thai central bank hikes policy interest rates anew; forecasts 3.6% 2023 GDP growth

SINGAPORE (ICIS)–On Wednesday, Thailand’s central bank raised its key interest rates by 25 basis points (bps) to 2.0% to tame inflation, while the economy is projected to post a 3.6% growth this year on the back of recovery in tourism and consumption.

This is the sixth consecutive rate hike issued by the Bank of Thailand (BoT) since August 2022, bringing the cumulative increase to 150bps.

It may be the last in the current monetary tightening cycle as inflation pressures appear to be easing.

“Inflation should continue to decline at a gradual pace,” Piti Disyatat, secretary of the BoT monetary policy committee, said in a statement.

Headline inflation is projected to be 2.5% in 2023 and 2.4% in 2024 due to easing electricity and oil prices, Disyatat said.

“Following another 25bps rate hike today, we think the Bank of Thailand (BoT) has reached the peak of the current rate hiking cycle,” said Sung Eun Jung, lead economist at research firm Oxford Economics in a note on Wednesday.

“With the policy rate now above where it was before the pandemic, we think an extended pause is most likely,” Sung said.

Thailand’s core inflation, which excludes food and energy, however, will likely remain elevated and is projected to stabilise at 2.0% in 2023 to 2024, the BoT said.

GDP growth is projected to accelerate to 3.6% in 2023 and further to 3.8% in 2024, from the 2.6% pace set last year, according to BoT.

“A key impetus is the broad-based recovery in tourism, which should promote employment and labour income, in turn sustaining private consumption,” BoT’s Disyatat said.

In the first quarter of 2023, the Thai economy expanded at an annualised rate of 2.7%, with the average inflation rate at 3.9%, according to data from the Thai Office of the National Economic and Social Development Council (NESDC).

On a seasonally adjusted quarter-on-quarter basis, the economy posted a 1.9% growth.

On a year-on-year basis, Q1 manufacturing continued to contract but logged a narrower decline of 3.1% from 5.0% in the previous quarter.

Thailand’s January-March 2023 exports, however, fell by 4.6% year on year to $69.8bn, with export volume down 6.4% “in line with the economic slowdown of key trading partners.”

“There’s still economic slack and the services sector has room to recover from its pandemic lows,” Sung of Oxford Economics said.

“The [Monetary] committee recognises upside risks to domestic growth, in part owing to forthcoming government economic policies. At the same time, there is a need to monitor the uncertain economic and monetary policy outlook of major economies,” BoT’s Disyatat said.

Focus article by Pearl Bantillo