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In a bid to lower inflation to its target range, the Bank of Thailand’s (BOT) monetary policy committee on Wednesday unanimously voted to increase Thailand interest rates by 25 basis points to a four-year high of 1.75%.
“The committee decided to increase the policy interest rate to normalise the monetary policy stance in a gradual and measured manner toward a level consistent with long-term sustainable growth,” said BOT in a statement.
“The Committee is prepared to adjust the size and timing of policy normalisation should the evolving growth and inflation outlook differ from the current assessment,” the central bank added. The decision to increase the benchmark one-day repurchase rate was in line with a forecast from a Reuters’ poll of economists.
Until last year, the country’s central bank had maintained the interest rate at a historically low level of 0.50%. BOT started the most recent cycle of tightening in August of 2022 faced with a global rise in living expenses and energy prices amid Russia’s invasion of Ukraine. And since then, the bank has raised the key rate five times, by a total of 125 basis points.
Thailand interest rates and inflation
BOT highlighted that even while inflation has decreased from 7.86% in August 2022 to 3.79% in February 2023, it still needed to hike Thailand interest rates by a quarter point to achieve its 1% to 3% inflation objective.
The slowdown in the country’s inflation in February can be attributed to milder price rises in food, non-alcoholic drinks, and non-food categories. Core inflation retreated to 1.9% in February from 3.0% in January. Further, consumer prices fell 0.12% in February from the previous month.
As per the central bank, headline inflation growth is expected to slow to 2.9% year on year in 2023, then to 2.4% in 2024. “Headline inflation will likely return to the target range in the middle of the year, but core inflation remains elevated, with upside risks from higher cost pass-through and demand pressures,” Piti Disyatat, secretary of the Monetary Policy Committee, told media persons on Wednesday.
Thailand interest rates and future projections
Apart from hiking Thailand interest rates, BOT also trimmed its forecast for 2023 GDP growth to 3.6% from its earlier projection of 3.7%. Also, it projected the GDP growth rate for 2024 at 3.8%.
It is interesting to note that Thailand’s tourism industry makes up one-fifth of the country’s GDP. So, growth in Thai tourism will also translate to the overall economic growth of the country. In 2022, 11.81 million visitors visited the Southeast Asian country. The central bank anticipates 28 million international arrivals in 2023 and 35 million in 2024, up from prior estimates of 25.5 million and 34 million, respectively.
“The Thai economy should continue to expand, driven mainly by tourism and private consumption…a key impetus is the broad-based recovery in tourism, which should promote employment and labour income, in turn sustaining private consumption,” claimed BOT.
Additionally, BOT on Wednesday also said exports are expected to gather steam in the second half of 2023, providing the economy with a much-needed boost after hardships faced during the pandemic years.
