With a clear eye on an uncertain inflation outlook, the Bank of Thailand (BoT) is finalizing its interest rate increase plan with a last 25-point hike set for August 2. These observations arise from recent surveys. June’s annual headline inflation saw a downturn to 0.23%, a slump below BoT’s target range of 1% -3%, pointing to a price revival later in the year. This tells us that BoT isn’t ready to wind up its cycle of fiscal tightening.
Dr. Sethaput Suthiwartnarueput, the BoT’s governor, affirmed last week that the current inflation outlook is on track with forecasts. Hence, future monetary policy is likely to ride on projections rather than relying entirely on present data. This slight recalibration has led economists, who participated in a poll between July 17-26 and previously predicted a cessation of the 150 basis points of policy tightening in May, to now foresee another rate hike.
In this pool of 22, a majority of 18 economists are expecting the BoT to raise its one-day repurchase rate by 25 basis points to 2.25% on August 2. This would mark the highest level since January 2014. The remaining four economists forecast no change.
Shreya Sodhani, a Barclays economist, responded to the recent substantial statements made by the BoT stating: “We now expect the bank to hike in August…the last hike, in our view. However, we also note the risk of another hike in September. While the MPC (Monetary Policy Committee) continues to accentuate the risks of inflation rising as growth and tourism revive, we believe these hikes result from financial stability concerns and the necessity to secure policy space.”
Moving ahead, inflation is projected to average at 1.8% this year, with a minor rise to 1.9% in 2024, well within the BoT’s target span. 13 of the 17 economists who provided a long-term outlook anticipate the BoT sustaining a 2.25% interest rate at least until mid-2024. Two economists see a rate cut by that time, while two others expect a peak at 2.50%.
Various factors will shape this path, like the inflation trend, recovery from the Covid-19 pandemic, an uptick in tourists amid Thailand’s simmering political climaxes. Any disruption in hammering out the future government could undermine confidence in the economy. The economy is predicted to grow at 3.7% this year, reaching 3.8% the next year.
Keen on identifying potential pitfalls, Krystal Tan, an economist at ANZ stated: “The key risk is the tumultuous political environment; any significant shift that compromises the economic recovery may lead to a hold instead.”
In related updates, the BoT’s Monetary Policy Committee’s recently published minutes suggest an ongoing economic expansion with some risks, as reflected by the decision to elevate key Thai interest rates for the sixth consecutive time.
Be First to Comment