Thailand: Policy rate reaches ‘appropriate’ level, but with upside risks
BOT anticipates higher growth and inflation in 2024.
Group Research - Econs, Chua Han Teng28 Sep 2023
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The Bank of Thailand (BOT) unexpectedly raised its benchmark interest rate by 25bps to 2.50%, the highest in a decade, on Sep 27. We think that interest rates are likely to stay steady into 2024, with upside risks from government policies, which we will re-evaluate when more details are unveiled. Given that headline and core inflation have moderated to below the BOT’s 1-3% target as of Aug (0.9% YoY and 0.8% YoY), Sep’s hike was likely a pre-emptive move in anticipation of potential inflationary impulses from the government’s stimulus. The BOT said that the additional hike will help to anchor inflation expectations. After 200bps of increases since Aug 2022, the BOT’s Monetary Policy Committee (MPC) sees the ‘current policy interest rate to be appropriate for supporting long-term sustainable growth’. The unanimous decision also suggests that policymakers are comfortable with the interest rate level for now.

We also received a sense of the BOT’s optimistic economic outlook from its refreshed forecasts. For 2023, the BOT lowered its growth, headline and core inflation projections, likely accounting for 2Q23’s growth disappointment and below-target inflation in recent months. For 2024, it raised its growth and headline inflation forecasts, but kept core inflation unchanged. On 2024 growth, we are also optimistic on the impetus from government policies, which pose upside risks to our 2024 forecast of 3.8%. MPC secretary Piti Disyatat said that the BOT assessed a 0.3-0.6 times multiplier effect for the government’s THB10k digital wallet cash handout. Yet, we remain cautious on the uncertain global economic outlook, given high interest rates in advanced economies and bumpy recovery in China. On 2024 inflation, the BOT expects headline and core inflation to pick up, but stay in the target range. We view the higher headline but unchanged core inflation forecasts reflecting the BOT’s expectation that core inflation and upside demand-side pressures from a stronger growth outlook can be anchored by current interest rates.

Chua Han Teng, CFA

Economist - Asean
[email protected]

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