Bank of Thailand raises policy interest rate 0.25%

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BANGKOK, Aug 24 –  The Bank of Thailand (BoT) on Thursday raised the policy interest rate by 0.25 per cent from 3.25 to 3.50 per cent, effective immediately, to contain inflationary pressure.

BoT Assistant Governor Paiboon Kittisrikangwan said the Monetary Policy Committee (MPC) decided by a 5-2 vote to raise the policy interest rate by 0.25 per cent to 3.50 per cent, the highest rate in three years as it deemed it appropriate to continue the policy rate normalisation.

Despite the interest rate policy increase of 0.25 per cent, the real interest rate remains negative at -0.35 per cent.

The MPC assessed that the risks to economic growth of the advanced economies had increased as US economic growth continued to slow to a rate lower than expected. Core member economies in the euro area began to slow somewhat.

Meanwhile, Asia is expected to be able to withstand some of the impact of the global economic slowdown due to the resiliency of its domestic demand and exports as well as remaining monetary and fiscal policy space to stimulate the economies, the BoT statement said.

The MPC agreed that the slowdown in advanced economies would partially weigh on Thai exports, reducing demand. However, expanding intra-regional trade in tandem with the continued growth of domestic demand in Asian economies as well as export diversification to new markets will help mitigate the impact.

Domestic consumption and investment are expected to expand due to favourable employment conditions, improved confidence, robust growth in credit demand, and fiscal stimulus going forward, the BoT said in its statement.

Despite the slowdown in global oil and commodity prices, inflationary pressure remained as domestic demand continued to expand amid fiscal stimulus. As a result, inflation expectations have risen.

The MPC judged that, despite the increased risk on growth emanating from risks on global growth compared to the previous meeting, the Thai economy retained its growth momentum but with heightened risks for inflation, together with the below normal policy rate.