The Bank of Thailand hiked its policy rate by 0.25 percentage points yesterday for a fifth consecutive meeting in an attempt to tame inflation as the economic recovery gathers steam.
According to the central bank's Monetary Policy Committee (MPC) secretary Piti Disyatat, the committee voted unanimously to raise the policy interest rate from 1.50% to 1.75%, effective immediately.
The economy should continue to expand, driven mainly by tourism and private consumption. Goods exports are recovering and are expected to strengthen in the second half this year.
However, global economic uncertainties have increased, in part from persistent inflationary pressures and episodes of banking stress in advanced economies, said the MPC.
Headline inflation would likely return to the target range in the middle of the year, but core inflation remains elevated with upside risks from higher cost pass-through and demand pressures, said the group.
The committee deems a continuation of gradual policy normalisation to be appropriate in light of the growth and inflation outlook.
According to the central bank's forecast in March, the economy is expected to expand 3.6% year-on-year in 2023, down from 3.7% forecast in November last year.
Export value is projected to contract 0.7% year-on-year, down from a growth outlook of 1%. Export value is expected to expand 4.3% next year, up from 2.6% growth predicted in November.
The central bank upgraded its foreign arrival estimate this year to 28 million from 22 million last November. The tally is projected to rise to 35 million next year, up from a previous forecast of 31.5 million.
Mr Piti said the tourism recovery is driving economic growth momentum.
Merchandise exports show signs of rebounding after contracting at the end of last year, and should gather momentum in the second half of this year, he said.
However, persistently high inflation and banking stress in some advanced economies pose risks to the global economic outlook, according to the committee.
Headline inflation will likely return to the target range by mid-2023, and is projected to decline to 2.9% and 2.4% in 2023 and 2024, respectively.
Core inflation is projected to fall to 2.4% and 2.0% in 2023 and 2024, respectively. However, persistently high inflation remains a risk, as producers could pass on higher costs absorbed in the past and demand-side pressures could pick up as the recovery gains traction, said the MPC.
The committee said the overall financial system remains resilient. Recent banking stresses in some advanced economies have not had a significant impact on the local financial system, as Thai financial institutions and corporations have limited linkages with the troubled banks and risky assets.
However, the situation remains fluid and developments need to be monitored, with the potential impact on Thailand's financial stability assessed, said the MPC.
The committee is prepared to adjust the size and timing of policy normalisation should the growth and inflation outlook change, Mr Piti said.
