Bank of Thailand holds key rate at record low
published : 9 Feb 2022 at 14:26
updated: 9 Feb 2022 at 16:15
The Bank of Thailand (BoT) left its key interest rate unchanged at a record low on Wednesday, seeking to maintain support for a fragile recovery in the economy amid efforts to revive the country's battered tourism sector and rising risks from inflation that has breached its target range.
The BoT’s Monetary Policy Committee unanimously voted to hold the one-day repurchase rate at 0.50% for a 14th straight meeting after three rate cuts in 2020.
All 23 economists in a Reuters poll expected the BoT to stay on hold through 2022.
Economies globally are seeking to navigate a recovery path between tenacious virus variants and inflation pressures, while Southeast Asia faces a particular risk to capital flows as the U.S. Federal Reserve prepares to raise interest rates. Indonesia, which decides policy Thursday, has turned hawkish, while Singapore has tightened policy twice since October.
The BoT “is likely to remain somewhat cautious about the economic outlook in the wake of rising Covid cases. However, its job will have become more complicated” as price pressures build, said Mitul Kotecha, chief emerging markets Asia & Europe strategist at TD Securities in Singapore. “With inflation rising and major central banks becoming more hawkish, pressure to shift policy will grow in the months ahead.”
The baht was up 0.1% to 32.89 per dollar at 2.17pm local time. The benchmark SET Index Stock extended the day’s gains to 1.3%, reaching its highest level since August 2019.
Prime Minister Prayut Chan-o-cha’s government has resumed quarantine-free visa entry and planned talks on travel bubbles with China and Malaysia to revive the tourism industry. Meanwhile, it’s also controlling key food and fuel prices to help minimise inflation’s impact on consumers.
Consumer prices accelerated by 3.23% in January, the fastest since last April and above the central bank’s 1%-3% policy target range for this year set in December.
“Headline inflation in 2022 would be higher than previously assessed and could exceed the target range in the early part of the year,” the central bank said in its statement, though it said the average for the year would be within the target’s upper bound. Its most recent inflation forecast for 2022, issued in December, was 1.7%.
The bank will become concerned only if inflation remains elevated for a long time, but for now the rise is expected to be temporary, Assistant Governor Piti Disyatat said in a briefing after the decision.
“We haven’t seen a broad-based price increase yet, so we are not too concerned on overall inflation for now,” Mr Piti said. “Inflation exceeding the target is normal, and it doesn’t mean we need to adjust the rate right away as long as we have credibility.”
Covid-19 cases are rising again due to the highly-contagious Omicron variant. New daily infections have risen above 10,000 since Feb 5, after staying below that level since late October.
“The strength of the economy will be a prime consideration for the central bank, which today described the recovery as fragile. Virus cases are rising again, fuelled by the spread of the Omicron variant,” said Gareth Leather, senior Asia economist at Capital Economics Ltd. “Whereas some economists are pencilling rate hikes for this year, we think interest rates will be left unchanged.”