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Thailand Monetary Policy May 2023

Thailand: Central Bank hikes rates further in May

At its 31 May meeting, the Monetary Policy Committee of the Bank of Thailand (BoT) hiked the policy rate to 2.00% from 1.75%. The decision marked the sixth consecutive increase and was unanimous.

The Bank decided to tighten its stance further due to still-elevated core inflation and strengthening economic activity. A recovering tourism sector and sturdier household expenditure amid increasing wages and employment are set to boost domestic demand. The BoT expects inflation to moderate further ahead as supply-side constraints continue to ease and prices for energy decrease globally. Headline inflation returned to the 1.0–3.0% target range in March and is expected to average 2.5% and 2.4% in 2023 and 2024, respectively.

In its communiqué, the Bank reiterated that it decided to hike again “in a gradual and measured manner toward a level consistent with long-term sustainable growth”. Moreover, it added that due to upside risks, it stood ready to “adjust the size and timing of policy normalization.” This could imply further hikes, although our panelists are split on the future monetary policy path.

Commenting on the decision, Enrico Tanuwidjaja, economist at UOB, stated:

“We continue to keep our view that the interest rate cycle would have reached its peak at the current level of 2.00% and based on our assessment, the interest rate should stay at the current level throughout the rest of this year. We currently pencil in a rate cut of 25 bps to 1.75% in the BOT benchmark rate in Q1 2024.”

The next monetary policy meeting is scheduled for 2 August.

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