BANGKOK, June 29 (Xinhua) -- Thailand's central bank is under mounting pressure to raise interest rates as the country's inflation has climbed to its highest level in nearly 14 years while its currency weakened to multi-year lows.
Analysts expect the Bank of Thailand (BOT) to raise the key policy rate in the third quarter of this year in the country's first rate hike since late 2018.
Such expectation came as the BOT left the rate on hold in a narrow vote of 4-3 at the latest monetary policy committee meeting this month but signaled possible rate hikes ahead.
The BOT said "a very accommodative monetary policy will be less needed going forward," and it will assess "the appropriate timing for a gradual policy normalization."
The policy rate has been left unchanged at a record low of 0.5 percent since May 2020 to buttress the tourism-reliant economy, with the growth rate plunging 6.2 percent in 2020, the worst recession in more than two decades.
The country's economic growth rebounded to 2.2 percent in the first quarter of 2022 amid the recovering tourism and service sectors, backed by the country's easing pandemic curbs.
"We expect the BOT monetary policy committee to raise Thailand's policy rate to 0.75 percent in the third quarter of 2022 in response to inflation surges and an upbeat outlook on economic recovery following Thailand's reopening," said the Economic Intelligence Center of the Siam Commercial Bank, one of Thailand's biggest commercial banks.
The research center expected Thailand's annual inflation growth to reach 5.9 percent this year, the highest level in 24 years.
The country's consumer inflation rose 7.1 percent year-on-year in May, the highest level since July 2008, on soaring energy and food prices. The government has imposed price caps on various products and services, and provided subsidies to vulnerable groups to help ease the rising living costs.
The U.S. Federal Reserve's aggressive interest rate hike has widened the interest rate gap between the United States and Thailand, which may spur capital outflows from Thailand, putting pressure on the already weakening Thai baht and increasing imported inflation, said Kirida Bhaopichitr, research director for international economics and development policy under the Thailand Development Research Institute.
However, the BOT would not raise rate aggressively as the Fed did because Thailand's economic recovery remained fragile while raising the rate too quickly would hurt the recovery of the demand, Kirida said.
Kirida expected a 0.25-percentage-point rate increase at the next BOT monetary policy committee meeting scheduled on August 10 and another 0.25-percentage-point hike before the end of this year.
Tim Leelahaphan, an economist with the Standard Chartered Bank (Thailand), also expected the BOT to raise rates in a gradual manner, with the first hike coming in the third quarter of the year.
As it still takes time for Thailand's economic growth to return to pre-pandemic levels while the effect of rate hikes on containing supply-side inflation remains unclear, the BOT's priority might remain on growth rather than inflation, Tim said.
He said the bank forecast Thailand's economic growth of 3.3 percent year on year in 2022 and 4.5 percent in 2023. ■
