In an effort to lower inflation to its target range, Thailand’s central bank increased its key policy rate by 25 basis points (0.25%), to 1.75%, the highest level since August 2019.
The Bank of Thailand raised rates for the sixth time in a row on Wednesday as the Committee voted unanimously to raise the policy rate by 0.25 percentage point from 1.50 to 1.75 percent.
Tourism and private consumption remain the key drivers of growth
The tourism industry and private consumption should be the key drivers of further economic growth in Thailand, according to the Thai central bank press release.
According to the Tourism Board of Thailand, more than 11 million foreign tourists visited Thailand last year, much above the prior goal of 10 million. 25 million to 30 million foreigners are projected to arrive this year, contributing an estimated 2.38 trillion baht ($69.46 billion) to the economy, according to the authority.
The interest rate has been held at a historically low level of 0.50% by the central bank since May 2020. In August, it started the most recent cycle of tightening, hiking the rate by 0.25 percentage points in response to an increase in global energy and living costs brought on by Russia’s invasion of Ukraine.
Growth forecasted to be 3.6 and 3.8 percent in 2023 and 2024
According to the Committee, in 2023 and 2024, the economy would rise by 3.6 and 3.8 percent, respectively. A major driver is the tourism industry’s comprehensive recovery, which should support labor income and employment, both of which will support private consumption.
It is anticipated that in the second half of this year, goods exports would continue to strengthen. However, inflationary pressures that endure and instances of banking stress in industrialized nations have contributed to the rise in global economic uncertainty.
The MPC expects headline inflation to be 2.9% and 2.4% in 2023 and 2024
By mid-2023, headline inflation is predicted to have likely returned to the target range and will then drop to 2.9 and 2.4 percent in 2023 and 2024, respectively.
Other contributing variables include easing supply-side constraints, particularly those brought on by falling oil and energy costs. In 2023 and 2024, respectively, it is predicted that core inflation will decrease to 2.4 and 2.0 percent. Yet, manufacturers could pass on greater costs absorbed in the past, and demand-side pressures could increase as the recovery gains steam.
About the author
Bangkok Correspondent for Siam News Network. Editor at Thailand Business News
