Thailand raises rate a third time as price pressures linger

BANGKOK (Bloomberg): Thailand increased its key interest rate by a quarter point for a third straight meeting and raised its inflation estimate for 2023 while reiterating it’s ready to adjust the size and timing of its tightening.

The Bank of Thailand’s monetary policy committee voted unanimously to raise the one-day repurchase rate by 25 basis points to 1.25% on Wednesday (Nov 30), as seen by 20 of 21 economists in a Bloomberg survey, with one predicting no change.

The central bank revised its forecast for 2023 headline inflation to 3% from a previous 2.6% estimate while it slightly lowered economic growth projection to 3.2% for 2022 and 3.7% next year. The outlook for headline price gains to return to target was pushed to third quarter of next year from previously anticipated second quarter.

"Economic recovery will be on track, albeit with risks to inflation,” the BOT said in a statement.

"Given the heightened uncertainties surrounding the global economy, the committee is ready to adjust the size and timing of policy normalization should the growth and inflation outlook shift from the current assessment.”

Thailand is sticking to its gradual tightening approach even as some analysts previously thought the moves were too little to cool price gains at a 14-year high and a currency hitting a 16-year low.

Since then, the baht has rebounded and headline consumer prices eased to a six-month low.

"We think the economy has recovered and headline inflation has passed the peak,” Assistant Governor Piti Disyatat told a briefing Wednesday.

"A gradual policy normalisation remains an appropriate course for monetary policy given the growth and inflation outlook,” he said.

Core inflation is projected to ease to 2.5% in 2023 and further to 2% in 2024 from an estimated 2.6% this year. Headline inflation is seen to cool to 2.1% in 2024.

The baht extended gains to as much as 0.4% after the rate hike, poised to cap its biggest monthly gain since 1998. The currency has advanced more than 7% this month. The benchmark stock index gained as much as 0.6% while the yield on 10-year sovereign bonds rose 4 basis points to 2.722%.

The nation will likely buck the global trend of slowing growth next year, powered by a resurgent tourism sector that’s helping boost local demand.

The central bank sees gross domestic product growth accelerating to 3.9% in 2024 as foreign visitors are expected to reach 31.5 million that year.

The monetary authority also raised its estimate for tourist arrivals to 10.5 million this year from 9.5 million earlier, and to 22 million in 2023, up by a million from its September forecast.

That may help the nation swing back into a current account surplus of $3.8 billion next year from a deficit seen at $16.5 billion this year, the central bank said.

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