Thailand ready for rate rise to fight inflation, World Bank says

THE pace of Thailand's economic recovery, spurred by more tourism, is giving the country's central bank more scope to raise interest rates to fight inflation, according to the World Bank.

South-east Asia's second-largest economy is likely "to gain momentum and reach pre-pandemic levels in the fourth quarter," driven by the drop in Covid-19 cases and relaxation of border restrictions, according to a report on Wednesday (Jun 29).

"Thai rate normalisation can start soon, so they can raise the policy rate in a gradual pace in line with the economic recovery," Kiatipong Ariyapruchya, World Bank senior economist, said at a briefing in Bangkok. Fighting inflation, now at a 14-year high, is important as it risks putting more Thais into poverty, especially with food and energy prices under pressure from the war in Ukraine, he said.

The agency expects headline inflation to stay at a 14-year high over the course of 2022, at 5.2 per cent. The Bank of Thailand's target is a range of 1 per cent-3 per cent.

"As Thailand moves into the recovery phase, it will be important to make progress on fiscal consolidation while rebalancing public spending towards public investment to help support the government's vision to build back better and greener," Kiatipong said.

Thailand's monetary-policy committee kept its key interest rate unchanged at a record low 0.5 per cent for a 16th straight meeting in a split decision early this month. Still, minutes from the decision said that further delays to dealing with inflationary pressures may cause "greater costs" to the economy.

The World Bank sees gross domestic product (GDP) expanding 2.9 per cent this year. In a separate report, Moody's Analytics forecasts GDP growth of about 3.5 per cent in 2022, "with robust exports and the return of foreign tourists supporting the economy."

"Although some central banks in the region have hiked rates a number of times, BOT is coming to normalisation very gradually," Eric Chiang, associate economist at Moody's Analytics, said in the report on Tuesday. "That leaves the next scheduled meeting on Aug 10 as the likely timing of its first rate hike."

A week baht is another factor supporting the case for normalisation, according to the Moody's analyst. The Thai currency weakened slightly as of 2:30 pm local time on Wednesday, to 35.17 per US dollar. It's dropped about 3.5 per cent versus the greenback this year. BLOOMBERG