The Bank of Thailand on Wednesday raised the policy rate by 0.25 percentage points to 1%, in a bid to tame high inflation amid an uneven economic recovery.
The meeting of the central bank's Monetary Policy Committee (MPC) voted unanimously for the rate hike, which is effective immediately, according to the committee's secretary Piti Disyatat.
Last month the MPC voted six to one to raise the rate for the first time in nearly four years, by 0.25 percentage points to 0.75%, to contain persistently high inflation.
The MPC said the overall growth and inflation outlook is consistent with its previous assessment. The committee believes a gradual policy normalisation remains an appropriate course, leading to the policy rate hike of 0.25 percentage points.
The committee predicts the Thai economy will continue to recover, but with increased inflation risks. It said the policy rate should be normalised in a gradual and measured manner, consistent with sustainable long-term growth.
The MPC said it is ready to adjust the size and timing of the policy normalisation, should the growth and inflation outlook shift from its current assessment.
KEEPING A CLOSE WATCH
The depreciation of the baht has been rapid and continuous as the US dollar strengthens, but remains in line with regional currencies, said the group. The MPC plans to monitor developments in the financial and exchange rate markets, especially in this period of heightened volatility.
Mr Piti said the weaker baht had not affected Thailand's economic recovery or inflationary pressures, not had it caused significant foreign capital outflows.
On a year-to-date basis, the dollar has strengthened by 18.4%, while the baht has weakened by 12.1% against the greenback. The baht depreciation against the dollar is in line with other currencies worldwide, he said.
"The policy rate is one among several factors affecting a foreign exchange rate. However, the key role of monetary policy is to take care of the overall economy," said Mr Piti.
Other central banks have raised their policy rates, yet their currencies have stayed weak compared with the dollar. New Zealand has increased its policy rate by 2.25% this year, but as of Sept 27 the local dollar had depreciated by 17% against the greenback.
The Philippines increased its policy rate by 2.25% this year, while the peso is down by 14%; the UK has hiked its rate by 2%, yet the pound sterling is down by 20%; and South Korea has increased its policy rate by 1.5%, with the won dipping 16%.
With the Bank of Thailand increasing its policy rate by 50 basis points since August, commercial banks are expected to pass on the hike by gradually raising their own interest rates, he said.
Banks would normally increase interest rates by 40-50% of the policy rate hike, said Mr Piti. But given the uneven economic rebound, the market rate increases are expected to be lower than normal because banks are more focused on taking care of fragile customers amid the impact of the pandemic, he said.
In addition, Mr Piti said headline inflation peaked in August and is continuing to decline, while core inflation is expected to peak in the fourth quarter of this year. The MPC believes inflation will return to the central bank's target of 1-3% in the second or third quarter of 2023.
The committee said the Thai economic recovery is continuing to build momentum, driven mainly by tourism and private consumption.
The MPC maintained its 2022 economic growth outlook of 3.3%, but slashed its 2023 forecast to 3.8% from 4.2%. It also upgraded its 2022 headline inflation forecast to 6.3% from 6.2%, yet cut its 2023 estimate to 2.6% from 2.5%.
The baht continued its decline yesterday, falling to 38.27 to the US dollar.
Trinity Securities said the policy rate hike was in line with market expectations and should have a limited impact on the baht, which is now trading at a 16-year low.
If the MPC decides to lift the rate by another 0.50%, it would give banking stocks a boost. Domestic companies could be impacted negatively, especially rate-sensitive stocks such as housing, real estate development and leasing groups, Trinity said in its research.
Housing businesses have to be careful when making investments as financial costs will be rising, said the brokerage. Consumer, financial and leasing stocks may also start to see the impact of higher refinancing costs.
"But if you look at the yields of private bonds in the bond market now, they are still increasing steadily," Trinity stated.
Therdsak Thaveeteeratham, deputy director of research at Asia Plus Securities, said the rate hike reflects the MPC's focus on economic recovery, which is positive for domestic consumption and benefits retail stocks.
Meanwhile, Bangkok Bank on Wednesday increased its deposit and loan rates, effective Sept 29, hiking its deposit rate by a range of 0.15-0.50% per year and its minimum loan rate by 0.40% per year.
