29-5-2023 (BANGKOK) The Bank of Thailand (BOT) is expected to raise its key interest rate by 25 basis points (bps) on Wednesday, according to a Reuters poll, signaling an end to a modest tightening cycle. The poll also indicated that the central bank is likely to maintain the rate at the same level for the remainder of this year and the next.
Unlike many economies in Southeast Asia, Thailand has already seen inflation return to the central bank’s target range of 1% to 3%. The country’s commerce ministry predicts a significant easing of inflation in May, driven by a high base in 2022 and lower fuel prices.
However, Governor Sethaput Suthiwartnarueput stated last month that inflation risks persist and require monitoring, suggesting that the central bank’s policy decisions will be contingent on economic data.
Out of 22 economists polled, a substantial majority of 17 expected the BOT to raise its benchmark one-day repurchase rate by 25 bps to 2.00% at the May 31 meeting. The remaining five forecast no change in interest rates.
If the majority view prevails, interest rates in Thailand will be twice as high as they were before the COVID-19 pandemic.
Aris Dacanay, ASEAN economist at HSBC, commented, “To make sure inflation doesn’t slip away… we expect the BOT to push through with what it telegraphed and hike its policy rate by 25 basis points to 2.00%. Considerable demand-side price pressures may emerge which can pose an upside risk to Thailand’s inflation outlook. At the center of this is the expectation that Thailand will exhibit punchy growth figures in the remaining quarters of 2023.”
Since August, the BOT has raised interest rates by a total of 125 basis points, following a more cautious approach compared to many other central banks worldwide. Thailand’s economy, heavily reliant on tourism, has experienced a slower recovery compared to other countries in Southeast Asia.
Among economists who provided a longer-term outlook, 11 out of 20 anticipated the BOT to maintain interest rates at 2.00% until at least the end of the year.
Of the remaining nine economists, five predicted further rate hikes to 2.25% or higher by that time, while four forecasted no change in rates next week, with rates remaining at 1.75% until the end of 2023.
Charnon Boonnuch, economist at Nomura, wrote, “Although we think the BOT will sound hawkish at the May meeting, the further drop in inflation suggests the scope for more hikes is narrowing fast. We are more optimistic than the BOT on the economic recovery, as we think the tourism recovery will continue uninterrupted and exhibit more material improvement in H2 when the supply-side constraints ease further in Q2.”
