BANGKOK (Reuters) – Thailand’s central bank expects further gradual policy tightening as the benchmark rate is not at neutral levels yet and core inflation remains elevated, officials said on Wednesday.
The Bank of Thailand (BOT) has increased rates six times since August as policymakers stepped up efforts to tame high inflation. The BOT has pledged to gradually return the one-day repurchase rate to normal levels consistent with long-term economic growth prospects.
Southeast Asia’s second-largest economy has not yet reached its potential growth despite returning to its pre-pandemic level, assistant governor Piti Disyatat said at a monetary policy forum.
“We will eventually get back to our potential growth of a 3% to 4% range. But now we’re still below that level, so we haven’t fully recovered,” he said.
The BOT forecast economic growth of 3.6% this year and 3.8% next year, with some upside risks. Last year’s growth was 2.6%
The economy has been driven by the tourism sector while exports remain weak. The BOT projects foreign tourist arrivals at 29 million this year and 35.5 million next year.
On May 31, the BOT’s policy committee voted unanimously to raise the one-day repurchase rate by a quarter point to 2.00%, a level last seen eight years ago.
“Overall, the monetary policy committee considers that at the moment, the financial condition or the policy interest rate may still be slightly in an accommodative zone compared with the neutral zone,” Piti said.
Economists generally consider 2.5% as the neutral rate.
The BOT will next review policy on Aug. 2, when some economists see a pause on rate hikes while others see a further increase.
The central bank’s minutes released on Wednesday warned that the possibility of higher minimum wages could lead to a wage-price spiral.
Despite annual headline inflation dropping to 0.53% in May and below the central bank’s target range of 1% to 3%, and the central expects prices to pick up late in the year as demand-driven pressures increase, said Surach Tanboon, senior director of BOT’s monetary policy department.
Headline inflation is expected to be close to May’s level due to a high base last year, he added.
“We see core inflation remaining elevated and sticky, making inflation risks high, especially in 2024,” Surach said.
The BOT forecast average headline inflation at 2.5% this year and 2.4% next year. It sees core inflation at 2.0% in both years.
Source: Economy - investing.com
