Thai central bank to raise interest rates for first time in four years

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Thai central bank to raise interest rates for first time in four years

BENGALURU Thailand's central bank will raise interest rates for the first time in the last four years from a record low on Aug. 10 as the central bank shifts its focus from economic growth to rising inflation, a Reuters poll found.

High inflation, a global phenomenon of disrupted supply chains, has also affected Thailand and has remained above the central bank's target of 1 -- 3 per cent since early 2022, as well as the central bank's target of 1 -- 3 per cent. It hit a 14 year high of 7.66 per cent in June from a year earlier in the year and remained around that level in July.

The Bank of Thailand BOT has so far kept its policy rates unchanged to foster economic growth, even though last month it signalled a gradual monetary policy tightening to combat inflation.

In June when calls for rate hikes grew louder, three of seven monetary policy members voted in favor of a rate hike.

With economic recovery improving on the back of faster return of tourists, the need for extra policy accommodation is lessening, according to Charnon Boonnuch of Nomura.

They are looking to normalize the policy by raising it gradually but not aggressively in order to make sure that the economic recovery is not derailed while addressing the risk to the inflation outlook. In the July 29 -- Aug 5 poll, 17 of 20 economists predicted that the BOT would raise its policy rate by 25 basis points to 0.75 per cent on Wednesday from the record low it has maintained since May 2020.

A battered Thai baht, which had tumbled around 8 per cent so far this year, hasn't helped the burgeoning price pressures.

There are upside risks to Thailand's imported inflation because of the depreciating Thai baht compared to the US dollar, said Chua Han Teng, an economist at DBS.

Foreign reserves have been deployed to counter excessive currency volatility. The poll median showed that the central bank would raise rates in small increments of 25 bps in the following Q 3 and Q 4 meetings to 1.00 per cent and 1.25 per cent, respectively.

There was a four way split among the 20 economists who had a view until the end of 2022. Eight expected interest rates to reach 1.00 per cent, eight predicted 1.25 per cent, two said 1.50 per cent, two saw the rate hit 1.75 per cent.

Some people expect a more aggressive move, calling for 50 basis points. The recovery is still in the early stages. Boonnuch said that demand pool pressure is still picking up but slowly.

The global demand for Thai goods exports could be weak due to the global recession. We see resource export growth turn negative in 2023 because of the risks. Tourism in the country, an important revenue generator, was seen recovering quicker than anticipated, but still remains below pre-pandemic levels.

The central bank expects to have 6 million foreign tourist arrivals for the year this year, up from 5.6 million previously.

The Thai economy is heavily dependent on foreign tourism, and has become a one-trick pony. Kobsidthi Silpachai, an economist at Kasikornbank said policymakers would find it hard to stoke demand if tourist arrivals falter.