Thai central bank to hike another 25 bps on March 29 to make up for lost time: poll

THE Bank of Thailand is set to implement its fifth consecutive 25-basis-point interest rate hike on Wednesday in an attempt to get inflation back within target, but is then likely to hold its policy rate steady until at least next year, a Reuters poll found.

Although inflation in Thailand dropped to a 13-month low of 3.79 per cent in February from 5.02 per cent in January it was still above the BOT’s target range of 1-3 per cent. Unlike its neighbours Malaysia and Indonesia, which have paused their rate hikes despite inflation remaining above target, the BOT has signalled that its tightening cycle is not yet over.

A large majority – 18 of 22 economists polled by Reuters - expected the BOT to raise its benchmark one-day repurchase rate by 25 basis points to 1.75 per cent at its March 29 meeting. The remaining four forecast no change.

If the majority view prevails, interest rates will be nearly double where they were before the Covid-19 pandemic.

“While falling inflation reduces the pressure on policy rates, we think it is too early for the Monetary Policy Committee to pause its hiking cycle, given the low levels of interest rates and its late start,” said Lattakit Lapudomkarn, economist at Kiatnakin Phatra Securities in Bangkok.

The BOT has so far raised rates by a total of 100 basis points since August, a less aggressive pace than many of its regional peers, as Thailand’s economic recovery has lagged much of South-east Asia.

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Although the central bank forecast inflation would return to within the target range in the second half of the year, economists in the poll had a range of views on where rates would be by year-end.

Of the 19 economists who had a view on the year-end timeframe, four predicted the central bank would stop at 2.25 per cent or higher, five said 2.00 per cent, six said 1.75 per cent, and four had a forecast of 1.50 per per cent.

“Recent messaging from the BOT also signalled that its gradual policy normalisation stance remains appropriate for the recovering economy,” noted Khoon Goh, head of Asia research at ANZ.

Further out, we believe that there is still a little more room for policy normalisation as long as the growth outlook remains favourable.”

A separate Reuters poll found that Thailand’s economy would grow 3.7 per cent and 3.8 per cent this year and next, respectively, nearly in line with the central bank’s projections, and that inflation would average 2.8 per cent this year and then fall to 1.9 per cent in 2024.