Bangalore (Reuters) – In order to support economic recovery, Thailand’s central bank will maintain record-low interest rates for the remainder of the year, according to a Reuters poll. However, there are growing calls for an earlier rate hike due to inflationary risks.
Thailand’s inflation rose to 4.65% in April because food and energy prices went up. It was expected to stay above 5% for the next few months, which is well above the Bank of Thailand’s (BOT) target range of 1% to 3%.
Even with these pressures on prices, economists think the central bank will keep its policy of being easy on the economy until 2022.
After the number of COVID-19 cases went down and restrictions were eased, Thailand’s economy grew 1.1% in the March quarter compared to the previous three months. This was more than the 0.9% growth that a different Reuters poll had predicted.
However, China’s zero-COVID policy and low tourist arrivals continue to impede the recovery.
The Federal Reserve will keep its one-day repurchase rate at 0.50 percent at its June 8 meeting and for the rest of the year, according to all 20 economists polled between May 30 and June 3.
DBS economist Chua Han Teng said, “Our baseline expectation is that the Bank of Thailand (BOT) will keep things the same in 2022. However, we see rising risks that policymakers will become more hawkish and normalise monetary policy in the second half of 2022 in response to rising inflationary pressures.”
“By ‘hawkish shift,‘ we specifically refer to the scenario in which the BOT explicitly shifts its focus away from economic support and toward taming inflation or keeping pace with global rate hikes, and signals that rate hikes are imminent in 2H22.”
EARLIER MOVE
While the median forecasts from the survey indicated that the first rate hike will not occur until the first quarter of 2023 – unchanged from the poll conducted in April – some economists expected the BOT to act sooner.
Over a third, or seven of twenty respondents, anticipated at least one 25 basis point rate hike by Q4 2022, with two anticipating it as soon as the next quarter.
In an April poll, only two economists said that the rate would go up by a quarter-point in 2022.
ANZ economist Krystal Tan said, “We think the BOT will become less dovish because domestic inflation is going up and global trends of raising rates are going up faster.”
“A sustained recovery would allow the BOT to begin shifting its focus to anchoring domestic inflation expectations in the coming months and to gradually withdraw stimulus from the Great Recession.”
In the first quarter of 2023, the median prediction said that interest rates would go back to where they were before the pandemic, which was 0.75 percent. However, predictions ranged from 0.50 percent to 1.50 percent, which shows that policy direction is uncertain.
By the end of March, six of seventeen had rates of 0.75 percent or higher, while four had rates of 1.00 percent or higher. The remaining seven predict that interest rates will remain unchanged at 0.50 percent.
Expectations for a subsequent 25 basis point rate hike were shifted from Q3 2023 to Q2 2023 in the most recent survey, bringing the rate to 1.00 percent, where it was expected to remain until the end of the year.