Thailand holds key rate, lifts growth outlook on AI exports

[BANGKOK] Thailand’s central bank held its benchmark interest rate and boosted economic growth forecasts for the second time this year, as the artificial-intelligence boom drives exports.

The seven-member Monetary Policy Committee voted unanimously on Wednesday (Oct 28) to keep the one-day repurchase rate at 1 per cent, its lowest level since September 2022. The decision was expected by all 23 economists surveyed by Bloomberg.

The fourth-straight hold extends the longest run of unchanged decisions in two years and was in line with earlier signals from policymakers.

Inflation has remained manageable enough to allow the central bank to maintain an accommodative policy stance, while the government works to support an economy hurt by higher energy costs.

While describing the economy as continuing to grow below potential, the central bank upgraded its economic growth forecast to 2.4 per cent this year and 2.1 per cent in 2027, from earlier projections of 2.3 per cent and 1.8 per cent.

The Bank of Thailand (BOT) anticipates tamer price pressures, with core inflation seen averaging 1.2 per cent and 1.3 per cent this year and the next, respectively, down from June’s estimates of 1.5 per cent and 1.4 per cent.

“The committee believes that the current interest rate is appropriate to support economic recovery,” the central bank said.

“While inflation is projected to rise temporarily due to supply-side factors, the committee will need to monitor inflation trends and risks, as well as the long-term impact of low interest rates on economic and financial stability.”

The BOT said growth has been driven by better-than-expected exports and investment in light of global demand for AI, but that other sectors of the economy are still facing constraints.

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The number of foreign tourist arrivals is expected to decline amid higher oil prices, it said.

Private consumption continues to be limited by elevated household debt, fragile labour market conditions and weak purchasing power, particularly among low-income households facing cost-of-living pressure, the BOT said.

The Thai baht narrowed losses to 0.1 per cent against the US dollar after the decision, while the benchmark stock index was down 0.3 per cent.

The BOT said that the baht has been dragged lower this year by the prospect of tighter US monetary policy, along with rising oil prices, while Thai government bond yields are edging higher due to the global sell-off in fixed-income markets.

Most economists surveyed before the decision expected Thailand’s benchmark rate to remain at 1 per cent through the end of 2027, though JPMorgan Chase, OCBC and Bank of America have highlighted a growing likelihood of tightening next year.

The South-east Asian economy has shown signs of improvement, with exports rising 24 per cent from the year-ago period in September, as the AI boom lifted demand for electronics.

Imports surged 50.4 per cent, driven by fuel and capital goods. The government may also revise this year’s gross domestic product growth figures following an overhaul of the manufacturing production index to better capture new industries.

Thailand’s decision adds to a mixed regional policy picture. The Philippines delivered a surprise 50 basis-point hike on Oct 22 to fight inflation, while Indonesia and Singapore have recently kept policy settings unchanged. BLOOMBERG