Thailand central bank to increase rates 25 bps, tourism to bolster growth


Thailand's central bank is expected to raise interest rates by 25 basis points to combat high inflation, and further increases are likely even as China's reopening brightens the economic outlook.

Unlike its neighbours in Malaysia and Indonesia, the Bank of Thailand (BOT) is expected to continue tightening policy. While inflation in Southeast Asia's second-largest economy has slowed, it was still 5.89% in December, well above the central bank's 1-3% target.

Twenty-one economists out of 23 predicted that the BOT would raise its benchmark one-day repurchase rate by 25 basis points (bps) to 1.50 percent on January 25. The other two predict no change.

"Given inflation is still high and you have upcoming demand-side pressures coming from the recovery of tourism...the BOT would like to continue normalizing rates in a gradual and measured manner," said Aris Dacanay, economist at HSBC.

"Because of mainland China reopening borders much earlier and much faster than a lot of people expected...we do expect Thailand to grow faster than trend. This gives the BOT room to continue hiking rates, to continue anchoring inflation expectations."

Thailand, one of Asia's most popular tourist destinations, is expected to receive at least five million Chinese tourists and a total of 25 million foreign visitors this year, giving its battered economy a much-needed boost.

However, this is less than the 40 million foreign tourist arrivals recorded in 2019.

At least five million Chinese tourists are anticipated to visit Thailand this year, one of the most well-liked tourist sites in Asia, adding to the country's already devastated economy.

But even so, that number is still less than the 40 million foreign visitors who arrived in 2019.

The poll's median predicted that the central bank would increase borrowing costs by an additional 25 basis points, bringing them to two percent by the end of September.

"Although inflation is set to ease this year amid high base effects, we expect both the headline and core prints to stay above the mid-point of the BOT's 1-3 per cent target band in the coming quarters," noted Irene Cheung, senior Asia strategist at ANZ.

"The combination of improving growth prospects and still-elevated inflation gives the central bank room to continue reducing policy accommodation."

Inflation will typically be 2.8% this year before dropping to 1.9% in 2024.

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