Bangkok, Aug 10 (Reuters) – Thailand’s central bank raised its key interest rate for the first time in nearly four years on Wednesday, lifting it by a quarter point as expected to fight surging inflation as the economic recovery gains momentum.
The Bank of Thailand (BOT), which had been among Asia’s least hawkish central banks, finally joined most of its peers in raising rates as consumer inflation hovers near 14-year highs, though it stressed further hikes will be gradual.
The monetary policy committee (MPC) voted 6-1 to increase the one-day repurchase rate (THCBIR=ECI) to 0.75% from a record low of 0.50%, which had been unchanged since May 2020.
One member voted to raise the policy rate by 0.50 percentage point. The rate was last raised in December 2018.
Seventeen of 20 economists surveyed by Reuters had expected a quarter-point hike, with the remaining predicting a half-point rise.
The Southeast Asian country had maintained its policy focus on supporting the economic recovery, which has lagged that of its neighbours due mainly to tourism curbs during the COVID-19 pandemic. The vital tourism sector has just begun to recover this year as restrictions were eased.
“The economic recovery (has) continued with momentum from higher-than-expected foreign tourism,” Piti Disyatat, secretary of the MPC said in a statement.
“The economy is expected to return to the pre-COVID level by the end of this year and will continue to gain traction.”
The BOT had signalled gradual policy tightening to cool price pressures. Driven largely by high energy prices, the consumer price index (CPI) rose 7.61% in July from a year earlier, far above its target range of 1-3%.
The bank said it expected inflation to remain at a high level for the rest of the year before gradually falling to its target range in 2023 as supply-side price pressures ease.
“The Committee views that the policy rate should be normalized to the level that is consistent with sustainable growth in the long term,” the statement said.
“If inflation continues to weaken as we expect and growth struggles, the central bank will take a gradual approach to its tightening cycle. We think rates will peak at 1.5% next year, ” Gareth Leather of Capital Economics said in a note to clients, noting its forecasts were more conservative than what financial markets are expecting.
Miguel Chanco, chief Emerging Asia economist at Pantheon Macroeconomics, expected Wednesday’s hike will be followed quickly by another 25 bps move next month.
“That said, if the MPC decides to pause in September, then a hike in November probably should be ruled out, as the inflation picture would’ve improved substantially…”