BOT expected to raise interest rate by 0.25%
Economists from banks and securities firms expect the Bank of Thailand to raise interest rates by 0.25% in its meeting today (August 2), bringing it to 2.25%.
This is expected to be the final increase, given the growing concerns about economic recovery and potential risks such as high household debt and increasing inflation. Some experts are urging caution and suggest waiting to see if the government's policies can successfully stabilise the economy.
Pipat Luengnaruemitchai, chief economist at Kiatnakin Phatra Securities, stated that the Bank of Thailand is likely to raise rates by 0.25% in this meeting to counter future inflation expectations. He also pointed out that interest rates are currently higher compared to pre-COVID-19 levels, which could pose challenges for borrowers and the economy.
Furthermore, inflation has been steadily decreasing, and this could lead to a situation where the real interest rates turn positive again. Therefore, continuous rate hikes may not be necessary to support the future economic outlook.
With the delays in the formation of a new government leaving the budget for 2023 pending, the Ministry of Finance may not be the driving force for economic expansion, and the financial sector may have to play a role in supporting continuous economic growth.
Head of Research of CIMBT Thai Bank, Amornthep Chawla also predicted that the rate increase by the Bank of Thailand would be 0.25% to manage future inflation expectations, but pointed out that external pressures, such as the rate hikes by the US Federal Reserve and other central banks, have decreased. It is speculated that the rate hikes may reach their peak in the near future.
He also noted that the uncertain political situation could affect confidence and the overall Thai economy in the third quarter of this year.
Burin Adulwattana, managing director of the Kasikorn Research Centre, expressed the view that today’s hike would likely be the last due to reduced inflationary pressures and increased risks in the Thai economy, including high household debt and the ongoing drought problem. Additionally, the number of international tourists has not returned to pre-pandemic levels.
The experts were in agreement that the Thai economy is facing challenges, and continuous rate hikes may not be the best approach to the current situation. The Bank of Thailand may want to preserve policy space in case of future pressures, as both domestic and external factors are still uncertain.
