Thailand central bank raises key rate by a quarter-point as expected

Thailand’s central bank raised its key interest rate by 25 basis points for a fourth consecutive meeting on Wednesday, as it attempts to curb high inflation even as the return of Chinese tourists brightens the country’s economic growth prospects.

The Bank of Thailand’s (BOT) monetary policy committee voted unanimously to raise the one-day repurchase rate to 1.50 per cent at its first review of the year.

Of the 23 economists polled by Reuters, 21 had expected a quarter point hike while the remaining two forecast no change.

Thailand’s economy – the second-largest in South-east Asia – is expected to continue growing while headline inflation should decline, the central bank said in a statement.

Any further rate hikes would be gradual and measured, it said, but added it stood ready to adjust them as needed.

“The committee deems that a continuing gradual policy normalisation is an appropriate course for monetary policy consistent with the growth and inflation outlook,” the BOT said.

But it added it expected “increased risks from demand-side inflationary pressures due to the economic recovery”.

Exports were also expected to slow this year before picking up in 2024 alongside a global recovery, it said.

With Wednesday’s move, the central bank has raised the benchmark rate by a total of 100 basis points (bps) since August.

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The tightening cycle has been less aggressive than many of its regional peers, however, as Thailand’s economic recovery has lagged that of other Southeast Asian countries. Its vital tourism sector only started to rebound late last year.

Average headline inflation hit a 24-year high of 6.08 per cent last year, far above the BOT’s target range of 1 per cent to 3 per cent.

In November, the BOT forecast that Thailand’s economy would grow 3.7 per cent in 2023, after estimated growth of 3.2 per cent last year, and that inflation would drop to 3 per cent. Official 2022 gross domestic product (GDP) data is due in February.

The BOT also bumped up its tourism forecasts on Wednesday, saying it expected foreign arrivals at 25.5 million this year and 34 million next year, versus previous forecasts of 22 million and 31.5 million, respectively. Thailand received a record of nearly 40 million visitors in pre-pandemic 2019.

China’s reopening is expected to further boost Thailand’s tourism, with the government predicting at least five million Chinese visitors this year, about half of the 2019 figure.

The baht was largely unchanged at 32.77 to the US dollar after the policy announcement. It has appreciated by 5.3 per cent so far this year, becoming Asia‘s best performing currency, driven by a weaker greenback and China’s earlier-than-expected reopening. REUTERS