Bank of Thailand raises policy rate by 25 points to fight inflation
The Bank of Thailand’s Monetary Policy Committee (MPC) on Wednesday voted unanimously to raise the policy interest rate by 25 basis points to 1.25% to control inflation.
MPC secretary Piti Disyatat said the rate hike took immediate effect.
Piti said the rate rise was based on economic recovery driven by tourism and private sector consumption amid higher-than-projected inflation because of high energy prices.
After going unchanged for more than two years during the Covid-19 pandemic, the policy rate was raised by 25 basis points to 0.75% in August and to 1% the following month.
The MPC projects Thailand’s economy will grow 3.2% this year, 3.7% in 2023 and 3.9% in 2024, Piti told a press conference on Wednesday.
It noted an increasing number of foreign arrivals along with rising consumption driven by an upward trend in employment, wages and salaries. The MPC also saw better income distribution across the country, Piti said.
The MPC believes tourism and consumption will continue to be main economic drivers for Thailand in 2023 and 2024, offsetting a slowdown in exports, he added.
MPC forecasts headline inflation of 6.3% this year, 3.0% in 2023, and 2.1% in 2024
Headline inflation had passed its high point in the third quarter, Piti said, after breaching expectations mainly because of rising power bills. It was now expected to fall toward the target span by year-end, he added.
The MPC forecast core inflation would not exceed previous targets of 2.6% this year, 2.5% in 2023 and 2.0% in 2024.
Piti said the MPC saw Thailand’s financial status as still stable since commercial banks had strong levels of funds and reserves while household and business debt repayment is improving in line with the reviving economy.
But the MPC also realized that SMEs and households were still vulnerable to rising living costs and debt given income levels have not fully recovered.
Hence, the MPC believes debt restructuring measures should be maintained while the government should enact specific measures to help vulnerable groups.
Although the cost of private sector borrowing is rising in line with the policy rate, Thailand’s overall financial situation is easing as fund raising by firms and borrowing and bond issuing continue to expand, Piti said
The MPC said it was keeping a close watch on financial markets and baht exchange rate fluctuations as it implemented financial policy with the goal of maintaining price stability, sustainable economic growth and stability of the financial system.