Thailand raises key rate to highest in 9 years

THAILAND’S central bank raised its benchmark interest rate to the highest level in nine years, while signaling it may be nearing the end of its tightening campaign.

While the Bank of Thailand’s (BoT) Monetary Policy Committee (MPC) last Wednesday voted unanimously to raise the one-day repurchase rate by 25 basis points (bps) to 2.25% as widely expected, the clearest sign that they are nearly done boosting borrowing costs came in the language of the policy statement.

The BoT dropped its reference to the need for “gradual and measured” rate moves that policymakers have used consistently since starting to hike rate in the second half of 2022 (2H22). The authority has so far delivered 175bps of rate increases.

While the central bank maintained that it’s focus is to ensure inflation, which is already below the BoT’s 1%-3% aim, stays within target sustainably, assistant governor Piti Disyatat noted in a statement that overall financial conditions have turned less accommodative. “Monetary policy should ensure inflation stays within target sustainably as well as focus on long term financial stability,” the BoT said, adding that additional rate moves will depend on economic and inflation outlook as well as risk assessments.

Despite political uncertainty clouding the economic outlook, Thailand is still set to experience a third straight year of growth acceleration amid a rebound in tourism. That’s given the BoT room to normalise policy settings further.

“In the context of continuing economic expansion and narrowing slack, monetary policy should keep inflation sustainably within the target range and foster longer-term macro-financial stability by preempting the buildup of financial imbalances that could arise in a low-for-long interest rate environment,” Piti said.

More than two months after a general election, Thailand is yet to get a new government after conservative parties and military-appointed senators blocked attempts by pro-democracy leader Pita Limjaroenrat to lead the next administration. A caretaker government under Prime Minister Prayuth Chan-Ocha has limited power to pass policies or approve spending, which could hurt business and investment activity in South-East Asia’s second-largest economy.

The baht has been volatile this year mainly because of the dollar’s movements. The local currency gained over 3% in the past month, the strongest currency in Asia tracked by Bloomberg. Governor Sethaput Suthiwartnarueput had earlier said the baht’s strength was due to a weaker US dollar and domestic political sentiment. Higher foreign tourist arrivals and current account surplus also support baht outlook. — BLOOMBERG / pic AFP


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