SUNDAY, April 14, 2024

Central bank raises policy interest rate by 25 basis points to 1.75%

Central bank raises policy interest rate by 25 basis points to 1.75%

The Monetary Policy Committee (MPC) of the Bank of Thailand on Wednesday voted unanimously to raise the policy rate by another 25 basis points, from 1.50% to 1.75% per annum, with immediate effect.

MPC secretary Piti Disyatat said the committee came to the conclusion that a policy rate hike was needed to tame inflation and bring it within the target range of the central bank.

Piti said the MPC saw the rate hike as necessary, taking into account range the continual expansion of the Thai economy, driven by the tourism sector and consumption by the private sector, and signs of the export sector rebounding.

The MPC expected headline inflation to be within the target range by the middle of this year, as core inflation was still high due to high manufacturing costs and the high prices of raw materials for the manufacturing sector.

Yesterday's rate hike was the second this year, following a 25 basis points hike to 1.50% on January 25.

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 2021 and to 1% the following month. On November 30 the same year, the MPC raised the policy rate by 25 basis points to 1.25% to control inflation.

Piti said the MPC expected the Thai economy to expand by 3.6% this year and by 3.8% next year, thanks to the rising number of foreign tourists, which had resulted in more employment.

The MPC also attributed the expanding growth to increasing consumption by the private sector in response to the rising number of foreign tourists.

The MPC noted that the export sector had seen signs of recovery in the first quarter and it expected export recovery to become clear in the latter half of the year, Piti said.

The MPC sees headline inflation returning to the target of 2.9% from the middle of this year and slide further to 2.4% next year in line with the easing oil and electricity prices.

The MPC also expected core inflation to slide to 2.4% this year and to 2% next year.

The committee, however, expressed apprehensions of the high inflation lingering longer because of risks from the high manufacturing cost and the high prices of raw materials, so the MPC would still have to monitor inflation closely, he added.

The central bank committee was also satisfied that financial institutions in the country had good stability and would not be affected by the fallout of the collapse of some banks in the United States and other major economies, Piti said.

The MPC noted that the situation in the near future would continue to fluctuate, so the central bank would have to closely monitor the impact on the Thai financial situation from the overseas fallouts.

The MPC said although the business sector and most households have higher capability to repay debt, some small and medium-sized enterprises (SMEs) and households are still facing financial difficulties and remain vulnerable to rising cost of living.

The MPC sees the need for debt restructuring of SMEs and households to continue, Piti added.

The financial situation in general had started to ease, but the availability of cash had started to tighten due to the rising cost of loans in the aftermath of policy rate hikes, the MPC said. The situation, however, did not pose any hurdles in fund raising for the private sector.

The MPC added that the baht had continued to fluctuate in keeping with the value of the US dollar and the problems of financial institutions in major economies.

Under the policy to maintain price stability and economic growth as well as the stability of the financial system, the MPC resolved to raise the policy rate in accordance with the need for sustainable economic growth, Piti said.