Bank of Thailand holds rate while warning inflation breaching target

Bank of Thailand holds rate while warning inflation breaching target

The Bank of Thailand left its key interest rate unchanged on Wednesday, as expected, maintaining support for a fragile economic recovery facing global risks.

The BoT's seven-member Monetary Policy Committee unanimously voted to hold the one-day repurchase rate at 0.50%, where it has been since May 2020, for a 15th straight meeting.

The BoT said inflation this year will breach its target on higher oil and food prices, though it plans to hold its policy rate steady to focus on supporting an economy still recovering from the pandemic.

The BoT raised its consumer price growth forecast for this year to 4.9%, above the top-end of its 1%-3% target range and boosting it from the 1.7% it predicted in December.

Facing higher imports costs for energy and other risks related to Russia’s invasion of Ukraine, the central bank also trimmed its outlook for gross domestic product and forecast the current account to swing to a deficit. 

With its focus still on growth, and expecting price pressures to ease by next year, the bank’s rate-setting committee decided unanimously to hold its key rate at a record low 0.5% for a 15th straight meeting, as forecast by all 23 economists in a Bloomberg survey.

“While the Bank of Thailand tries to delay rate hikes, the balance may gradually shift to upside risk to inflation while the economy continues to recover,” said Frances Cheung, rates strategist at Oversea-Chinese Banking Corp in Singapore.

The baht held gains of about 1% against the dollar after the rate announcement, heading for its biggest one-day rise in more than five months. Meanwhile, the benchmark stock index pared an earlier advance to trade 0.5% higher by 3.36pm.

Assistant Governor Piti Disyatat said in a statement Wednesday that inflation may exceed 5% in the second and third quarters before slowing to within its target next year, as supply pressures ease and demand stays relatively low. Inflation expectations remain within the bank’s target over the medium term, he added. 

“It’s not worth weighing on the economy to bring inflation back within the target,” Mr Piti said at a briefing, referring to raising rates. “We don’t want to use a tool that has wide impact now to deal with short-term problem.”

Mr Piti added that the central bank will consider whether it needs to revise the policy rate once it sees the output gap start to narrow, which it expects to happen late next year.

“We expect the BoT to refrain from tightening policy until the pre-pandemic level of output is within reach, said Bloomberg Asean economist Tamara Mast Henderson. “The impact of the war in Ukraine has pushed this milestone further down the road -- toward mid-2023 or later.”

The central bank on Wednesday also lowered its gross domestic product forecast for this year to 3.2%, from 3.4%, and for next year to 4.4%, from 4.7%. And it now sees a current account deficit of $6 billion for this year, from an earlier expectation of a $1.5 billion surplus. 

Thailand, a net energy importer, is facing rising costs as oil prices surged following Russia’s invasion of Ukraine. Although inflation already accelerated to the fastest pace in 13 years last month, monetary policymakers have focused on supporting the economic recovery from the pandemic, while signalling fiscal authorities are better placed to ease inflation issues. 

Finance Minister Arkhom Termpittayapaisith last week said monetary and fiscal policies must be synchronised to sustain the recovery. The government also announced measures worth 80.2 billion baht, mainly to subsidize energy prices

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