The Bank of Thailand has chosen to increase its policy rate by a quarter of a percentage point despite rising pressure from an expected global economic slowdown.
Monetary Policy Committee secretary Piti Disyatat announced that the MPC unanimously decided to raise the policy rate by 25 basis points, from 1% to 1.25 %, effective immediately. The recovery of the Thai economy is largely responsible for the uptick in tourist and household spending.
It is expected by Piti that the Thai economy would grow by 3.2% in 2022, 3.7% in 2023, and 3.9% in 2024. Nonetheless, the bank has revised downward its growth projections for the following two years from 3.3% and 3.8%, respectively, to 3.2% and 3.6%.
According to Piti, the global economic recession might be more severe than expected, which was a major factor in the downgrading. Private spending has also been bolstered by an overall improvement in economic activity as well as a rebound in employment and worker income.
The MPC has said that the growth trajectory of the Thai economy would not change much between 2023 and 2024, as the robustness of the tourist industry and private spending will help cushion the blow to Thai exports from the global downturn.
The government agency has raised its forecast for international visitors to 10.5 million in 2022 and 22 million in 2023.
The MPC committee now forecasts that 2023’s headline inflation rate would be higher than the 2.6% anticipated in February due to the increase in power prices. However, it is expected that headline inflation would revert to the 1% – 3% target range by the end of the third quarter of 2023.
Similar to its earlier projection, the central bank expects core inflation of 2.6% in 2022, 2.5% in 2023, and 2% in 2024.
The MPC has stated that it would keep an eye on inflation concerns, particularly the potential increase in domestic and cost-pass-through prices.