The Bank of Thailand (BOT) is set to raise interest rates by another quarter-point on Wednesday (30 Nov) for a third straight meeting amid fragile growth and signs of easing inflation have started to ease.
The widely-expected move to raise the benchmark one-day repurchase rate by 25 basis points would bring it to a modest 1.25%.
Thailand’s economy is not expected to return to pre-pandemic levels until early next year as its vital tourism sector, which makes up about 12% of output, begins gradually rebounding.
With the slowest pace of inflation in six months in October, helped by government measures to ease the cost of living, BOT Governor Sethaput Suthiwartnarueput said it is not necessary to aggressively increase rates to manage inflation like in other countries.
The U.S. Federal Reserve has increased rates by 375 basis points so far in this cycle, with 75 basis point moves at the last four meetings and another 50 due in December.
Despite the wide interest rate gap, the baht has been one of the top performers in emerging market currencies, depreciating only about 7% so far this year.
External pressure on the BOT to be more assertive with rate hikes has also eased after the recent retreat in the dollar. Capital inflows have meanwhile returned to its domestic bond and equity markets in the month-to-date, with the decline in foreign exchange reserves starting to reverse.
A weak currency is generally considered positive for the tourism-dependent Thailand economy.
The government hopes to see tourism next year reach 80% of pre-pandemic levels. 40 million tourists visited Thailand in 2019. (NNT)