THAILAND’S central bank raised the benchmark policy rate for the first time in more than three years, and signalled sticking with measured moves going forward to fight inflation without derailing the economy’s recovery.
The bank’s monetary policy committee on Wednesday decided to increase the one-day repurchase rate by 25 basis points to 0.75% as forecast by 24 of 27 economists in a Bloomberg survey. The remaining three had predicted a 50-basis-point hike. The rate was last increased in December 2018.
“The Committee views that the policy rate should be normalised to the level that is consistent with sustainable growth in the long term,” the Bank of Thailand (BoT) said in a statement. “Monetary policy normalisation should be done in a gradual and measured manner consistent with the growth and inflation outlook in the period ahead.”
The baht fell as much as 0.5% against the dollar, which Scotiabank’s Qi Gao attributed to the slower pace of hike. “Maybe investors are worried about tonight’s US CPI that may surprise on the upside again,” he said. The benchmark Thai stock index was down 0.6%.
Wednesday’s action follows months of central-bank speak on the need to raise rates sooner to avoid large moves later to fight above-target inflation. A gradual approach was already favored by Finance Minister Arkhom Termpittayapaisith, who on Monday underlined the need to preserve growth, putting Thailand on a slightly different path from peers Philippines and India that have each raised their policy rates by more than 100 basis points in response to the Federal Reserve’s tightening.
The Thai government sees gross domestic product expanding 3.3% this year, in line with the central bank’s forecast in June. The pace of expansion is poised to be among the slowest in South-East Asia in 2022.
The Thai economy is likely to continue to recover and has strong momentum from the larger-than-expected increase in foreign tourists, the central bank said, while flagging risks to recovery from rising living costs.
While headline inflation rate at 7.61% last month was a tad below June’s 7.66%, it’s still way above the central bank’s 1%-3% target. Core price gains, which strips out volatile food and fuel items, was almost 3% in July, quickening from 2.51% a month earlier.
Inflation will remain at a high level throughout 2022, largely unchanged from the previous forecast, before gradually falling into the target range in 2023, the BoT said. — Bloomberg