Thai central bank chief sees gradual rate hikes to fight inflation

THAILAND will gradually raise interest rates to curb higher inflation and ensure no disruption to an uneven post-pandemic economic recovery, its central bank governor said on Friday (Jul 22), ruling out an off-cycle policy meeting for now.

While the recovery is clearer and should be intact, it is still not broad-based, with the export sector performing better than pre-pandemic levels, while tourism remains low, although recovering faster than expected, governor Sethaput Suthiwartnarueput said.

Raising rates would help anchor inflation expectations, he told a news conference, adding there was no need for a special rate meeting ahead of the scheduled Aug 10 policy meeting, as factors to watch remained within forecasts.

The Bank of Thailand (BOT) is expected to raise its key interest rate from a record low of 0.50 per cent at the next meeting, which would be the first hike since late 2018.

Inflation is expected to peak in the third quarter, averaging at 7.5 per cent, above the BOT's target range of 1-3 per cent, and the BOT will prevent it from rising steadily, he said.

"Our challenge is how to make the takeoff smooth," he said. "If we can't control inflation and it keeps rising, it will prevent the continuation of the recovery," Sethaput said.

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The inflation impact is 7 times that of rate hikes, he said, adding inflation would undermine purchasing power.

In June, the BOT predicted economic growth of 3.3 per cent this year and 4.2 per cent for 2023. It saw headline inflation at 6.2 per cent this year and 2.5 per cent in 2023.

However, South-east Asia's second-largest economy may grow faster than forecast this year as foreign tourist numbers could beat the BOT's 6 million estimate, Sethaput said.

Annual second-quarter economic growth was expected at more than 3 per cent, he added.

The BOT has not been caught behind the curve as medium-term inflation expectations remain anchored while Thai economic issues were different from those of developed countries, as it was still in the recovery stage, he said.

Interest rate differentials are not the only factor affecting capital flows and Thailand has seen net inflows this year, despite a weak baht, which is mainly driven by external factors, Sethaput said.

The BOT will let the baht move in line with market forces but will manage excessive currency volatility, he said. The baht hit its weakest level in more than 15 years. REUTERS