Despite mounting pressure from an anticipated global economic slowdown, the Bank of Thailand has decided to raise its policy rate by a quarter point.
Piti Disyatat, the secretary of the Monetary Policy Committee (MPC), reported that the MPC voted unanimously to raise the policy rate by another 25 basis points, from 1% to 1.25 percent, effective immediately. The increase occurs as the Thai economy recovers, primarily due to tourism and domestic consumption.
Piti forecasts that the Thai economy will expand by 3.2% in 2022, 3.7% in 2023, and 3.9% in 2024. However, the central bank lowered its growth forecast for the two years from 3.3% and 3.8% to 3.2% and 3.6%, respectively.
Piti stated that the downgrade was primarily due to the possibility of a global economic slowdown, which could be more severe than previously anticipated. In addition, improving economic activities and a broad-based recovery in employment and labor income have supported private consumption.
The MPC stated that the trajectory of Thai economic growth for 2023 and 2024 remains largely unchanged, as the strength of the tourism sector and private consumption will help mitigate the impact of the global slowdown on the Thai export sector.
The central bank increased its projections for foreign tourist arrivals in 2022 from 9.5 million to 10.5 million and in 2023 from 21 million to 22 million.
As a result of the increase in electricity rates, the MPC committee anticipates that the headline inflation rate for 2023 will be higher than the 2.6% previously estimated. By the third quarter of 2023, however, headline inflation is anticipated to return to the target range of 1% to 3%.
The central bank projects core inflation of 2.6% in 2022, 2.5% in 2023, and 2% in 2024, close to its previous forecast of 2.6%, 2.5%, and 2%.
The MPC said it will continue to monitor inflation risks, particularly a possible increase in cost pass-through and domestic prices, which are still uncertain. (NNT)