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Thailand hikes rates as South-east Asia nations diverge on policy

[BANGKOK] The two biggest economies in South-east Asia are on different interest-rate paths: Thailand kicked off its hiking cycle while Indonesia is nearing the end.

The Bank of Thailand (BOT) raised its one-day bond repurchase rate for the first time since 2011, lifting it to 1.75 per cent from 1.5 per cent on Wednesday, in line with most economists' forecasts. Indonesia's central bank is set to keep its key rate on hold at 6 per cent on Thursday after 175 basis points of hikes since May to stem a rout in its currency.

The policy decisions come against the backdrop of rising US rates, a rebound in emerging markets and weaker global growth prospects.

"This was a dovish hike - similar to Korea's one-off hike," said Trinh Nguyen, a senior economist at Natixis in Hong Kong. "Inflationary pressures remain low and manufacturing is weak so the BOT will likely be done with this hike."

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The Bank of Thailand is the last of the main South-east Asian central banks to tighten monetary policy this year, concerned about a subdued economic growth environment and still low inflation.

Policymakers have been making it clear in recent weeks that a hike is imminent as it seeks to ward off risks stemming from a prolonged period of low rates. Governor Veerathai Santiprabhob has said the central bank may raise rates and then pause, a view backed by the chairman.

The baht has been among the most stable currencies in Asia this year, compared to large declines in the Philippine peso and Indonesian rupiah, allowing the central bank to keep policy unchanged for most of 2018.

The global and domestic environment may be more uncertain next year, with Thailand set to hold an election in February after more than four years of military rule.


Bank Indonesia has taken a front-loaded approach to policy in the face of rising US rates, with six hikes since May, including a surprise move last month, to help bolster the currency. The rupiah has had some respite this quarter, gaining more than 3 per cent against the dollar as emerging markets rebounded, giving Bank Indonesia more reason to pause.

Inflation remained subdued at 3.2 per cent in November, well within the central bank's 2.5 per cent to 4.5 per cent target band. A current-account deficit above 3 per cent of gross domestic product remains a key risk for Indonesia.

"Indonesia's economy has performed well with stability maintained as growth momentum endures," Bank Indonesia deputy governor Dody Budi Waluyo said by text message.

"The economic gains have been complemented by efforts to reduce the current-account deficit to within a manageable threshold."

Indonesia is also facing an election next year. The economy is expanding at about 5 per cent, short of the 7 per cent targeted by President Joko Widodo when he came to power four years ago. Mr Joko is boosting cash handouts to the poor and fast-tracking infrastructure projects.