27-7-2023 (BANGKOK) The Bank of Thailand (BOT) is expected to raise its interest rates by 25 basis points to 2.25 per cent on August 2, according to a recent Reuters poll. This final rate increase comes as the inflation outlook remains high and uncertain, despite a slight easing in headline inflation to 0.23 per cent in June, below the central bank’s target range of 1 per cent to 3 per cent. Economists predict that prices may pick up later in the year, indicating that the BOT is not yet finished with its tightening cycle.
Governor Sethaput Suthiwartnarueput emphasized that the inflation outlook remains in line with expectations, and monetary policy will focus more on the future outlook rather than current data. As a result, economists who previously believed the modest policy tightening cycle had ended in May now anticipate one more rate hike.
Out of 22 economists polled, 18 expect the BOT to raise its benchmark one-day repurchase rate to 2.25 per cent, the highest since January 2014, while four forecast no change. Some economists, like Shreya Sodhani from Barclays, warn of the possibility of another hike in September, driven by concerns around financial stability and the need to build policy space.
The poll indicates that inflation will average 1.8 per cent this year and 1.9 per cent in 2024, still within the BOT’s target range. Looking further ahead, 13 out of 17 respondents expect the interest rate to remain at 2.25 per cent until at least mid-2024. However, much will depend on the inflation trend, economic recovery from the COVID pandemic, and tourist arrivals amidst political tensions in the country.
Potential delays in forming the next government could impact economic confidence. The country’s economy is expected to grow by 3.7 per cent this year and 3.8 per cent next year. The volatile political environment remains a main risk, and significant developments that threaten the economic recovery could prompt the BOT to hold off on further rate adjustments, warns Krystal Tan, economist at ANZ.
