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Thailand Monetary Policy September 2023

Thailand: Central Bank delivers surprise hike in September

At its 27 September meeting, the Monetary Policy Committee of the Bank of Thailand (BoT) hiked the policy rate to 2.50% from 2.25%. Although the decision marked the eighth consecutive increase and was unanimous, it took markets by surprise.

The Bank’s decision was aimed at keeping inflation within target against a backdrop of sustained GDP growth and diminishing slack in the economy. In addition, the BoT now sees inflation increasing in 2024 due to stronger economic activity and supply-side pressures stemming from the El Niño weather phenomenon. With regards to activity, the Bank cut its 2023 growth projection by 0.8 percentage points to 2.8% amid an increasingly downbeat external environment. That said, the 2024 GDP outlook was bumped to 4.4%, as the Bank expects recovering exports and tourist inflows to boost activity next year.

In its forward guidance, the Bank stated that the policy rate was now normalized to a level “appropriate for supporting long-term sustainable growth” and that future decisions would depend on inflation and the broader economic outlook, with government stimulus policies an upside risk. As such, the Bank’s year-long hiking cycle has likely reached its end.

The last scheduled meeting for 2023 will take place on 29 November.

Krystal Tan, economist at ANZ, commented on the outlook: “It is difficult to completely rule out another rate hike, considering the unanimous vote today and BoT’s assessment of potential upside risks to growth and inflation from government policies. […] For a further rate hike to materialise, we would need to see growth and inflation come in stronger than what the BoT currently expects. As things stand, we think the balance of risks to their forecasts is tilted toward the downside.”

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