THURSDAY, March 28, 2024
nationthailand

MPC raises key policy rate in bid to tame impact of inflation on economic growth

MPC raises key policy rate in bid to tame impact of inflation on economic growth

The Monetary Policy Committee (MPC) on Wednesday further raised the policy interest rate by 25 basis points to 1.00 per cent per annum with immediate effect.

The latest hike by 0.25 percentage point followed a similar increase last month.

The MPC has sent out a strong signal since June that it would increase the policy rate to cool down inflation. In June, the MPC voted to maintain the policy rate at 0.50 per cent while three members voted to increase the rate by 25 basis points.

MPC secretary Piti Disyatat said the committee voted to raise the policy rate because the Thai economy was still recovering, driven by the tourism sector and spending by the private sector, while inflation was still high.

Piti said the MPC expected Thailand’s economic growth would be 3.3 per cent this year and 3.8 per cent next year because of the push from from the tourism sector and spending by the private sector. He said the MPC saw the tourism sector's recovery had exceeded expectations and more sectors of the economy were improving.

The MPC expected headline inflation would be 6.3 per cent this year and 2.6 per cent next year, Piti said. He explained that the MPC expected lower inflation next year because it believes global oil prices would go down while supply issues related to raw materials for manufacturing would also ease.

Piti added that the MPC expected core inflation this year and next year would be 2.6 and 2.4 per cent respectively.

He said the MPC expected inflation to rise because of increasing cost of manufacturing and surging demand for raw materials, but the MPC would closely monitor inflation and try to control it.

The MPC also saw that Thai banks still enjoyed stability with strong reserves, while businesses and households have better capabilities to repay their debt.

Piti said the MPC regarded the overall financial situation was still easing with government bonds offering higher yields and private firms having the capacity to mobilise funds via bonds.

The MPC would also monitor the volatile exchange rate and the baht’s depreciation, which has weakened along with other currencies in the region, Piti said.

Since the MPC see potential for growth of the economy, but is facing a risk from rising inflation, the MPC had decided to gradually increase the policy rate to ensure sustainable economic growth in the long run, Pitti said.

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