Thailand raises rate a 3rd time as price pressures linger

The central bank revised its forecast for 2023 headline inflation to 3% from a previous 2.6% estimate 


THAILAND increased its key interest rate by a quarter point for a third straight meeting and raised its inflation estimate for 2023 while reiterating it’s ready to adjust the size and timing of its tightening. 

The Bank of Thailand’s (BoT) monetary policy committee voted unanimously to raise the one-day repurchase rate by 25 basis points (bps) to 1.25% on Nov 30, as seen by 20 of 21 economists in a Bloomberg survey, with one predicting no change. 

The central bank revised its forecast for 2023 headline inflation to 3% from a previous 2.6% estimate while it slightly lowered the economic growth projection to 3.2% for 2022 and 3.7% next year. The outlook for headline price gains to return to target was pushed to the third quarter of next year (3Q23) from previously anticipated 2Q. 

“Economic recovery will be on track, albeit with risks to inflation,” the BoT said in a statement. “Given the heightened uncertainties surrounding the global economy, the Committee is ready to adjust the size and timing of policy normalisation should the growth and inflation outlook shift from the current assessment.” 

Thailand is sticking to its gradual tightening approach even as some analysts previously thought the moves were too little to cool price gains at a 14-year high and a currency hitting a 16-year low. Since then, the baht has rebounded and headline consumer prices eased to a six-month low. 

“We think the economy has recovered and headline inflation has passed the peak,” assistant governor Piti Disyatat told a briefing on Nov 30. “A gradual policy normalisation remains an appropriate course for monetary policy given the growth and inflation outlook,” he said. 

Core inflation is projected to ease to 2.5% in 2023 and further to 2% in 2024 from an estimated 2.6% this year. Headline inflation is seen to cool to 2.1% in 2024. 

Despite the forecast of persistent price pressures, some economists say BoT may pause its tightening cycle as it’s close to hitting a terminal rate. Standard Chartered Bank plc economist Tim Leelahaphan expects a pause in the first half of next year before tightening resumes in the 3Q that may see a terminal rate of 2% by the end of 2024. 

While the upward revision in BoT’s 2023 inflation forecast “was a slightly hawkish surprise,” Nomura Holdings Inc is pencilling in just one more hike of 25bps in January as the bank sees significant downside risks to the central bank’s inflation forecasts, according to analyst Charnon Boonnuch. 

The baht extended gains to as much as 0.6% after the rate hike, poised to cap its biggest monthly gain since 1998. The currency has advanced more than 7% this month. The benchmark stock index gained 0.7% while the yield on 10-year sovereign bonds rose 4bps to 2.722%. 

The nation will likely buck the global trend of slowing growth next year, powered by a resurgent tourism sector that’s helping boost local demand. The central bank sees GDP growth accelerating to 3.9% in 2024 as foreign visitors are expected to reach 31.5 million that year. 

The monetary authority also raised its estimate for tourist arrivals to 10.5 million this year from 9.5 million earlier, and to 22 million in 2023, up by a million from its September forecast. — Bloomberg

  • This article first appeared in The Malaysian Reserve weekly print edition