Bank of Thailand raises key interest rate by 25 basis points to 2%
The Bank of Thailand raised its policy rate by another 25 basis points, from 1.75% to 2%, effective immediately, citing inflationary pressure.
Piti Disyatat, secretary of the central bank’s Monetary Policy Committee (MPC), said the committee voted unanimously to raise the key rate.
The increase is necessary because core inflation remains high while the Thai economy is still expanding strongly due to rising tourism and private consumption, Piti said.
It was the third rate hike this year, following two previous 25-basis-point increases: to 1.75% on March 29 and 1.50% in January.
After remaining at 0.50% for more than two years during the Covid-19 pandemic, the policy rate was raised by 25 basis points to 0.75% in August 2022 and to 1% the following month. On November 30 the same year, the MPC raised the policy rate by 25 basis points to 1.25%.
Although headline inflation has dropped, core inflation remains high because domestic demand is rising as the economy expands, Pita said, adding that manufacturing costs could rise.
The MPC forecasts that Thailand’s economy will expand by 3.6% this year and 3.8% next year, due in part to a steady rise in foreign tourists.
A growing tourism market will create jobs and increase incomes, which will drive up domestic consumption, Piti explained.
The MPC expects exports to begin gradually rebounding later this year, he added.
It expects headline inflation to fall to the target of 2.5% this year and 2.4% next year, due to falling electricity and oil prices.
Core inflation will stabalise at 2% this year and next year, Piti said.
The general financial situation is steady with commercial banks having both stable funds and reserves, he said, adding that both businesses and households are finding it easier to repay loans due to the improved economic situation, Piti said.
The MPC recommended that the government continue with debt restructuring for some small and medium-sized enterprises with high debts and households struggling with the rising cost of living.
The baht has started to depreciate because of the strengthening US dollar as well as political uncertainty following the May 14 election.
However, the MPC expects the Thai economy to continue to expand, which will be accompanied by inflationary pressure.
