BENGALURU The Bank of Thailand will take another 25 basis-point rate hike on Wednesday, its second in a row, even as many of its peers opt for larger increases to fight high inflation, a Reuters poll showed on Monday.
Despite inflation in Thailand jumping to a 14 year high in August, the recovery in Southeast Asia's second-largest economy has lagged that of others as its vital tourism sector struggles to rebound, prompting the BOT to move slowly on rate hikes.
The central bank's rate rises would be gradual and measured to ensure the economy's smooth recovery, as BOT Governor Sethaput Suthiwartnarueput said earlier this month. He expects to return to pre-pandemic levels late this year or early next year.
Some 22 of the 25 economists surveyed, or nearly 90 per cent, predicted the BOT would raise its benchmark one-day repurchase rate by 25 basis points to 1.00 per cent at its Sept. 28 meeting, back where it was before the COVID-19 pandemic.
Charnon Boonnuch, economist at Nomura, said policy tightening is slower than in other countries but is consistent with the still weak domestic economic recovery, given Thailand's dependence on tourist arrivals.
We do not believe that the BOT should be aggressive in raising its policy rate because of the decline in energy prices and recent drop in inflation expectations. The U.S. Federal Reserve, which delivered its third straight 75 basis-point hike last week, was expected to continue with aggressive rate hikes, sending the dollar index to a new two-decade high and putting downward pressure on the Thai baht.
On Wednesday, the baht hit its lowest level in nearly 16 years, down nearly 11 per cent this year. A weaker currency keeps imports expensive and inflation high.
While exports and tourism benefit from a weak local currency, sticky inflation erodes real incomes and exacerbates inequality and poverty, a major issue for the government ahead of scheduled general elections due to May.
The BOT is expected to continue its hiking path well into next year, with small increments of 25 bps, bringing the rate to 2.00 per cent by the end of 2023, according to economists.
There was uncertainty around policy direction, as forecasts for the end of 2023 ranged from 1.00 per cent to 2.50 per cent.
A diminishing stock of ammunition to protect their currencies will put Asian central banks under pressure to perform a deeper tightening cycle, but this could come at the cost of slower growth, said Krystal Tan, economist at the ANZ Bank.
The central banks in Indonesia and the Philippines hiked their policy rates by 50 bp last week, and we expect their counterparts in Thailand. Tan said that he was expecting a 50 basis-point hike at the September and November meetings.