Thai central bank to raise rates 25 bps, tourism to bolster growth

Thailand’s central bank is expected to raise interest rates by 25 basis points on Wednesday to curb elevated inflation and further hikes are likely even as China’s reopening brightens the economic outlook, a Reuters poll found.

Unlike its neighbours in Malaysia and Indonesia, The Bank of Thailand (BOT) is expected to keep tightening policy for awhile longer. While price pressures in Southeast Asia’s second-largest economy have been cooling, inflation in December was still 5.89per cent, well above the central bank’s 1-3per cent target, reports Reuters.

Twenty-one of 23 economists polled by Reuters expected the BOT to raise its benchmark one-day repurchase rate by 25 basis points (bps) to 1.50per cent on Jan. 25. The remaining two forecast no change.

“Given inflation is still high and you have upcoming demand-side pressures coming from the recovery of tourism...the BOT would like to continue normalizing rates in a gradual and measured manner,” said Aris Dacanay, economist at HSBC.

“Because of mainland China reopening borders much earlier and much faster than a lot of people expected...we do expect Thailand to grow faster than trend. This gives the BOT room to continue hiking rates, to continue anchoring inflation expectations.”

Thailand, one of Asia’s popular tourist destinations, is expected to receive at least five million Chinese tourists and a total of 25 million foreign visitors this year, providing a much needed boost to its battered economy. But that is still lower than the 40 million foreign tourist arrivals recorded in 2019. The poll showed Thailand’s economy is expected to expand 3.7per cent and 3.8per cent this year and next, respectively, in line with the government’s projections.

Nearly 70per cent of respondents, 15 of 22, expected another hike of 25 basis points to 1.75per cent by end-March. Six forecast rates at 1.50per cent then and one said it would still be at 1.25per cent.

The poll median showed the central bank would then raise borrowing costs by another 25 bps, taking it to 2.00per cent by end-September.