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Thailand Monetary Policy August 2022

Thailand: Central Bank triggers policy normalization in August; hints at further tightening ahead

At its 10 August meeting, the Monetary Policy Committee (MPC) of the Bank of Thailand (BoT) hiked the policy rate to 0.75% from a record-low of 0.50%. The move marked the first increase in almost four years. The decision was not unanimous, as one of the seven members voted to raise the rate by 50 basis points.

The Bank decided to tighten its stance due to elevated inflation and a solid economic recovery, fueled by stronger-than-expected tourist inflows as Covid-19 restrictions were relaxed. The BoT expects inflation to remain sustained throughout the rest of 2022 before returning to the 1.0–3.0% target band in 2023, thanks to easing supply-side pressures. It still sees risks skewed to the upside, including faster cost pass-through to core inflation.

In its communiqué, the Bank stated that “the policy rate should be normalized to the level that is consistent with sustainable growth in the long term”, although it also stressed that “normalization should be done in a gradual and measured manner”.

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

“We continue to keep our view that BOT will deliver another back-to-back 25bps hike to 1.00% in Sep to further anchor inflation expectations. Thereafter, we also keep the view that BOT policy rate will stay there for the rest of 2022, before possibly resuming hike in 2023, conditional on how aggressive the Fed might be and how far more inflationary pressures may run above target.”

The next monetary policy meeting is scheduled for 28 September.

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