Thailand Raises Key Interest Rate Amid High Inflation, Economic Recovery

A customer inside the Gourmet Market supermarket in Bangkok, Thailand, on May 20, 2017. (Jorge Silva/Reuters)

Thailand’s Central Bank has raised its key policy rate by 25 basis points to tackle rising inflation while anticipating a rebound in the country’s economy to pre-COVID levels by the end of the year.

The Bank of Thailand (BOT) increased the policy rate from 0.50 percent to 0.75 percent, its first hike since 2018, after the monetary policy committee’s vote on Wednesday. One member voted to raise the policy rate by a lesser 50 basis points.

The BOT expects Thailand’s economy to improve as a result of “a larger-than-expected number of foreign tourist arrivals” following the relaxation of international travel restrictions and improving travel sentiments.

“The committee judges that the Thai economic recovery will continue to gain traction, and thus the extraordinarily accommodative monetary policy will become less needed,” it said in a statement.

Growth in Thailand’s tourism-dependent economy was estimated at 3.1 percent year-on-year in the second quarter, up from the 2.2 percent growth in the previous quarter, according to a Reuters poll.

The country’s gross domestic product grew by 0.9 percent on a quarterly basis, slowing slightly from 1.1 percent in the preceding quarter, according to the median forecast of 12 economists.

Headline inflation, which dipped to 7.61 percent in July from a new 14-year high of 7.66 percent in June, is expected to remain high before gradually falling into the target range in 2023. But the overall financial system remains stable, with ample liquidity, predicts the BOT.

“The committee views that the policy rate should be normalized to the level that is consistent with sustainable growth in the long term,” it stated, while suggesting that monetary policy normalization should be done gradually.

Thailand welcomed 1.07 million foreign tourists in July, up from 767,497 the previous month, following the removal of its COVID-19 pre-registration requirement for foreign travelers.

The government has estimated foreign tourist arrivals will reach 10 million this year. Prime Minister Prayuth Chan-o-cha said the economy was expected to grow 3.3 per cent this year, helped by increased tourism.

But an ongoing COVID-19 situation in China, which still pursues a zero-COVID strategy, has stoked fears of a delay in the return of Chinese tourists. That, along with a slowdown in the world’s second-biggest economy, is still weighing as an increased risk for a deep global recession.

Reuters contributed to this report.