BENGALURU : The Bank of Thailand will deliver another 25 basis-point rate increase on Wednesday, the second time in a row, despite the fact that most of its counterparts prefer higher increases to tackle high inflation according to a Reuters poll on Monday showed.
Despite the rate of inflation in Thailand increasing to the highest level in 14 years at the end of August improvement of Southeast Asia’s second largest economy has been slower than other countries as its crucial tourism sector struggles to make a comeback and prompts the BOT to slow down rate increases.
Related: The Thai central bank says that the policy interest rate will go up slowly.
The Governor of the BOT Sethaput Suthiwartnarueput said earlier this month that the rate increases by the central bank would be gradual and well-controlled to ensure a steady economic recovery, which he anticipates to be back to pre-pandemic levels by the end of this year or in the beginning of next.
His rate outlook was in line with his outlook on the overall outlook in the September. 19-26 Reuters survey of economists.
The survey included 22 of the economists interviewed, or more than 90%, predicted that the BOT will increase its benchmark one-day repurchase rate 25 basis points , to 1.00 percent at its Sept. 28th meeting. This would be which is back as it was before the COVID-19 epidemic.
Related: The Thai central bank will hold rates until the end of 2022, despite growing calls for an earlier hike. Reuters poll
Three people predicted a larger 50 basis-point rise.
“Policy tightening is more gradual than other countries, but in line with the fragile economic recovery that is taking place in the country due to Thailand’s dependence on tourism,” said Charnon Boonnuch the economic analyst at Nomura.
“Because of the dramatic drop in energy prices as well as the recent decrease on inflation estimates, we don’t think it is necessary to ask the BOT to take a more aggressive approach in increasing it’s policy rates.”
The U.S. Federal Reserve, that announced its third consecutive 75-basis-point rate hike this week, was predicted to keep up the more aggressive rate hikes, pushing an increase in the Dollar index to a brand new two-decade-high and putting even more downward pressures on the Thai baht.
Related: Thailand’s economy will grow despite a poor second quarter, according to the central bank.
A decline of nearly 11% in the past year. The baht reached the lowest level it has seen in sixteen years last Wednesday. A weaker currency makes imports high and inflation higher.
Tourism and exports benefit from the weak money, sticky inflation reduces real incomes, and can cause more poverty and inequality an issue that is of major concern to the government in advance of scheduled general elections scheduled for May.
Despite these concerns, experts in the poll predicted the BOT to maintain its upward trend into the next year, with tiny increments of 25bps, which would bring the rate up to 2.00 percent at the end of 2023.
However, estimates for the year 2023 varied between 1.00 percent to 2.50 percent, which suggests that there is some uncertainty regarding the direction of the policy.
Related: A Reuters poll shows that bearish bets on the peso fell after the Philippine Central Bank said it would only raise rates slowly.
“A decreasing supply of ammunition to safeguard their currencies could place Asian central banks under pressure enter an even more tightening cycle but it could be with a cost, which could be slower growth” stated Krystal Tan, an economist of ANZ Bank.
“Notably the central banks of Indonesia as well as the Philippines increased their rates of policy by 50bp in the last week, and we anticipate their equivalents from Thailand…to follow similar steps,” added Tan, who predicted a 50 basis point increase in September and November meeting.
Related: Despite the conflict, global central banks expect growth to continue.
