The Bank of Thailand's Monetary Policy Committee (MPC) has raised its policy rate by 0.25 percentage points, in a bid to maintain the momentum of the Thai economic recovery.
The MPC yesterday voted unanimously to raise the policy rate by a quarter percentage point, from 1.75% to 2%, with immediate effect. The rate hike aligns with the Thai economic expansion, which has been driven mainly by tourism and private consumption, said Piti Disyatat, secretary of the MPC.
The central bank has increased the policy rate six times since August 2022, rising from 0.5%. The MPC expects Thai GDP to grow by 3.6% and 3.8% in 2023 and 2024, respectively.
Mr Piti said inflation should continue to decline at a gradual pace. Headline inflation would likely return to the target range by the middle of the year and is projected to be 2.5% and 2.4% in 2023 and 2024, respectively, as electricity and oil prices dip, said the MPC.
However, core inflation is forecast to remain elevated with upside risks from higher cost pass-through and demand pressures.
The MPC believes continuing a gradual policy normalisation to be appropriate in light of the growth and inflation outlook.
In addition, he said merchandise exports are recovering broadly as expected, and should improve in line with a moderate expansion in global economic activity.
The MPC said it recognises upside risks to domestic growth, in part because of predicted government policies.
The committee plans to monitor the monetary policy outlook of major economies.
The depreciation of the baht against the US dollar has been partly influenced by the US Federal Reserve's monetary policy stance, the depreciation of the yuan, and domestic political uncertainties.
"The MPC also discussed internal political factors and we will monitor the new government's policies, which would likely impact supply and demand, based on the timeline for government formation," Mr Piti said.
He said the MPC would pursue policy normalisation and be prepared to adjust its size and timing should the economic and inflation outlook differ from the current assessment.
The central bank reported the Thai economy remained on the recovery path in April, driven by the tourism sector. Foreign arrivals tallied 2.18 million, up 6.7% from the previous month, with 24.5% of travellers from China.
The tourism industry continues to support private consumption, which grew 7.6% year-on-year in April, a jump from a 6.7% gain in the same month in 2022 and 5.5% in the first quarter of this year, said Sakkapop Panyanukul, the central bank's senior director of the economic and policy department.
However, the value of merchandise exports in April, excluding gold, dropped by 4.9% year-on-year, compared with a decline of 5.8% in 2022 and a contraction of 4.6% in the first quarter of this year, as global demand slowed.
