World Trade

The Thai central bank says that the policy interest rate will go up slowly.

BANGKOK (Reuters) – Bangkok is closed on Thursday. Thailand’s central bank said that any changes to its benchmark interest rate to bring down above-target inflation would be made slowly. This is because the economy is recovering slowly and the baht is getting weaker.

The Bank of Thailand (BOT) is one of the few major Asian central banks that has kept rates at record lows since the pandemic started. However, it has recently signalled a change in policy because inflation jumped to a level that hasn’t been seen in almost 14 years in May.

This year, headline inflation will stay high, but by the second quarter of 2023, it should be back in the target range of 1% to 3% set by the BOT. This was what senior director Sakkapop Panyanukul said at a trade seminar.

The BOT thinks that inflation will be 6.2% this year and 2.5% next year. They also think that the economy will grow by 3.3% in 2022 and 4.2% in 2023.

Sakkapop said that Southeast Asia’s second-largest economy should catch up to its growth rate before the pandemic by the end of this year or the beginning of next year. This would put it behind the rest of the region.

High inflation would make it harder for the economy to recover, according to the minutes of the BOT’s last meeting on June 8, when it voted 4-3 to keep the key rate at a record low of 0.5 percent. Delaying the normalisation of monetary policy would increase the risks to the economy. The three people who didn’t agree voted for a rise.

Most economists think that the BOT will raise interest rates at its next meeting on August 10. This would be the first rate increase since December 2018.

Sakkapop said that the baht had dropped quickly and would be more unstable because U.S. interest rates were rising quickly. On Thursday, the baht was close to its weakest level against the dollar in five and a half years.

He said that there have been “clearer signs of capital outflows” in June and that the central bank “would take care of the baht if the market moves beyond fundamentals.”

So far this month, foreign investors have sold net Thai stocks and bonds worth about 29 billion baht ($818.52 million) and 37 billion baht ($1.04 billion), respectively.

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