Thailand: BOT likely to continue gradual policy rate normalization on Jan 25
Metodi Tzanov
Helping finance professionals understand what is going on in Emerging and Frontier Markets
We expect BOT's Monetary Policy Committee (MPC) to raise the policy interest rate by 25bps to 1.50% at its next meeting on Jan 25. At end-November, the MPC voted unanimously to increase the policy rate by 25bps to 1.25%. The decision was in line with expectations. The MPC considers appropriate gradual and measured policy rate normalization, but is ready to adjust the size and pace of policy normalization if the growth and inflation outlook changes amid heightened uncertainties about the global economy, the press release said.
Since then, the plan for gradual and measured interest rate hikes was confirmed on a couple of occasions by senior BOT officials, including governor Sethaput Suthiwartnarueput and assistant governor for the monetary policy group Piti Disyatat. The latter also said that the BOT will not set a terminal rate for its benchmark interest rate, in contrast to the US Federal Reserve.
New data releases since the previous Central Bank Watch have included CPI for November and December, as well as new economic forecasts by the ADB and the World Bank.
The headline CPI increased by 5.89% y/y in December, speeding up from 5.55% y/y in November. We remind that the BOT's target range for headline inflation is 1-3%. The CPI has hence exceeded the upper end of the range for 12 consecutive months. CPI inflation was 6.08% in 2022, a 24-year high. The core CPI increased by 3.23% y/y in December, marginally accelerating from 3.22% y/y in November.
On a related note, the finance minister and the MPC agreed to set the monetary policy target for price stability such that headline inflation would reside within the 1-3% range for the medium-term horizon and for 2023. The MPC's assessment was that headline inflation would return to the target range within 2023. The cabinet approved the target on Dec 27.
The ADB projects that Thailand's GDP will rise by 3.2% in 2022 and 4.0% in 2023, the institution said in its Asian Development Outlook Supplement released in mid-December. In September, the economic growth projections were 2.9% for this year and 4.2% for next year. The World Bank has reduced its 2023 GDP growth forecast to 3.6% from 4.3% expected in June, the institution said in its Global Economic Prospects report released on Tuesday. The WB now estimates economic expansion by 3.4% in 2022, higher than 2.9% estimated in June. With regard to 2024, the WB now forecasts that the Thai GDP will rise by 3.7%, which compares with 3.9% projected in the June Global Economic Prospects report.
The local currency is trading at USD/THB 33.355 as of the time of writing, which compares with USD/THB 35.11 on Nov 30, the date of the previous Central Bank Watch.