Thai economy gradually recovering; inflation poses risk: central bank

THAILAND’S economy has returned to pre-pandemic levels and is gradually recovering, helped by tourism, the country’s central bank said on Wednesday (Apr 12), adding it was closely monitoring inflationary pressures.

“Arrivals (this year) could exceed targets,” Bank of Thailand (BOT) senior director Sakkapop Panyanukul told an analyst meeting on Wednesday, maintaining a target of 28 million arrivals for 2023.

The central bank will closely monitor inflation and the recovery in demand that could add to pressures.

The BOT continued to back an approach of gradual and measured policy normalisation as it hiked rates last month, minutes of the meeting showed, citing a risk that inflation could stay elevated longer than expected.

On Mar 29, the BOT’s policy committee voted unanimously to raise the one-day repurchase rate by a quarter point to 1.75 per cent, in a bid to curb inflationary pressures.

Policy tightening will continue as core inflation will remain high, the minutes released on Wednesday showed.

The BOT has hiked the benchmark interest rate by a total of 125 basis points since August, less aggressive than many of its peers in South-east Asia as Thailand’s economic recovery has lagged the region.

At the last meeting, the BOT also trimmed its economic growth projections to 3.6 per cent this year and 3.8 per cent next year, from the previous forecasts of 3.7 per cent and 3.9 per cent, respectively.

A strong rebound in tourism is expected to be the main driver of growth in South-east Asia’s second-largest economy. It expanded 2.6 per cent last year, at a time when the country’s tourism sector had just started to recover.

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“There remained a risk of inflation staying elevated for longer than expected, as firms could pass on higher costs absorbed in the past and demand-side pressures could pick up,” the minutes said.

Headline inflation dropped to its lowest rate in 15 months of 2.83 per cent in March, returning within the BOT’s target range of 1 per cent to 3 per cent for the first time since 2021. Core inflation also slowed in March.

The BOT forecast headline inflation at 2.9 per cent this year, with the core rate seen at 2.4 per cent. Headline inflation is expected to return to the target range in the second quarter. REUTERS