Sethaput Suthiwartnarueput, Governor of the Bank of Thailand, said the Bank of Thailand’s move to raise interest rates by 25 basis points to 0.75% was a “gradual and measured approach”.
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Bank of Thailand Governor Sethaput Suthiwartnarueput said the central bank does not need to “make big interest rate hikes eloquently” as the country’s economy is only expected to return to pre-pandemic levels. at the end of the year.
On Wednesday, the Bank of Thailand raised its key interest rate for the first time since 2018 as inflationary pressures continued to weigh on the economy.
Suthiwartnarueput said the 25 basis point increase to 0.75% was a “gradual and measured approach”, as the country was in “a very different part of the world”. [its] economic cycle” compared with countries that have increased exchange rates more strongly.
Shreya Sodhani, regional economist at Barclays, said the Thai economy remained sluggish, growing only 2.2% year-on-year in the first quarter, and higher interest rate hikes could continue. slow down the economy of this country.
Sodhani backed the central bank’s modest increase, saying the country’s economic growth was not “good enough” to warrant a 50 basis point increase. However, Barclays expects two more 25 basis points hikes this year.
While more advanced economies are tightening monetary policy at a faster pace, Thailand’s gradual and measured approach will ensure the country’s economic recovery remains intact. Suthiwartnarueput said.
“[Advanced economies] We’re looking for a gentle landing, but we’re looking to try to ensure a smooth takeoff,” he added.
Inflation forecast
The Central Bank of Thailand said it expected “Key inflation will remain high through 2022was largely unchanged from the previous forecast, before gradually falling into the target range in 2023 as supply-side inflationary pressures subside. “
The country’s inflation rate hit a 14-year high of 7.66% in June. Although it fell slightly in July to 7.61%, it was still well above the central bank’s 1% to 3% target.
“Inflation has been tracked quite high,” said Suthiwartnarueput of the BOT. “But we don’t see any kind of inflationary pressure from the demand side, it’s all driven by the supply side.”
He said the central bank expects inflation to peak in the third quarter. Barclays also has a similar view, expecting Thailand’s inflation to peak in August.
Although inflation has picked up at a much faster rate over the past two months, Barclays’ Sodhani said the central bank’s 2022 headline inflation expectation of 6.2% was “much lower than our forecast”. I’m 7% for this year.”
Tourism recovery
Going forward, Suthiwartnarueput said pickup trucks in the tourism industry will be the main driver of Thailand’s economic growth. The country’s economy is mainly based on tourism and will benefit from the easing Covid-19 travel measures and visa requirements are waived.
“Before Covid, we had 40 million tourists to Thailand. Last year, we had 400,000,” he said.
“Much of our recovery depends on the growth of the tourism industry.”
The central bank said it expected to welcome 8 million tourists this year.
“Thailand’s economy is forecast to continue to recover with strong growth momentum. This is due to a larger-than-expected number of foreign tourists after the easing of international travel restrictions and improve tourism sentiment,” the Central Bank of Thailand said.
Barclays’ Sodhani said, however, that tourist arrivals will not affect growth “in a huge way if the arrivals don’t spend enough.”
She explained that European tourists usually travel to Thailand in the first quarter, while tourists from ASEAN countries and India arrive in the second and third quarters. Sodhani said travelers from the following regions tend to book shorter trips, thus spending less.
“Tourism in general will continue to drive growth, but not in proportion to tourist numbers,” added Sodhani.
