Thai central bank raises key rate as economy recovers, flags further hikes

By Orathai Sriring and Kitiphong Thaichareon

BANGKOK (Reuters) -Thailand’s central bank raised its key interest rate by 25 basis points for a fourth consecutive meeting on Wednesday, in an attempt to curb high inflation even as the return of Chinese tourists brightens the country’s economic growth prospects.

With last year’s headline inflation at a 24-year high, the Bank of Thailand’s (BOT) monetary policy committee, at its first review of 2023, voted unanimously to raise the one-day repurchase rate by a quarter point to 1.50%, as widely expected.

Thailand’s economy is expected to continue growing while headline inflation should decline and return to a target range of 1% to 3% late in the year, the central bank said.

Any further rate hikes would be gradual and measured, it said, but added it stood ready to adjust them as needed.

“The committee deems that a continuing gradual policy normalisation is an appropriate course for monetary policy consistent with the growth and inflation outlook,” the BOT said in a statement.

It added it expected “increased risks from demand-side inflationary pressures due to the economic recovery”.

Assistant Governor Piti Disyatat reiterated in a news conference that interest rates would continue to rise for a while as “we’ve already taken off, with a sustained economic recovery”.

With Wednesday’s move, the BOT has raised the key rate by a total of 100 basis points since August, though the tightening cycle has been less aggressive than many of its regional peers as Thailand’s economic recovery has lagged that of other Southeast Asian nations.

Some analysts expect a pause in the tightening cycle is nearing.

“Given their expectations of elevated core inflation, our read is that the (central bank’s) balance of risk is tilted towards inflation rather than growth,” said Kobsidthi Silpachai, head of capital markets research at Kasikornbank.

“We therefore see that the committee will do one last 25-bps hike in this tightening cycle, at its next meeting and pause at 1.75%,” he said.

Exports were expected to slow this year, offsetting some of the economic gains from tourism, before picking up later this year or in 2024 due to improvements in advanced economies and China, it said.

In November, the BOT forecast Southeast Asia’s second-largest economy would grow 3.7% in 2023, after estimated growth of 3.2% last year, and that inflation would drop to 3%. Official 2022 gross domestic product (GDP) data is due next month.

The BOT also raised its tourism forecasts on Wednesday, expecting 25.5 million foreign arrivals this year and 34 million next year, up from 22 million and 31.5 million, respectively. Thailand received a record of nearly 40 million visitors in pre-pandemic 2019.

China’s reopening is expected to further boost Thailand’s tourism, with the government predicting at least five million Chinese visitors this year, about half of the 2019 figure.

(Reporting by Orathai Sriring, Kitiphong Thaichareon, Satawasin Staporncharnchai and Chayut Setboonsarng; Editing by Kanupyiya Kapoor, Martin Petty and Kim Coghill)