Monetary policy can ‘look through’ CPI volatility, Bank of Thailand says

Monetary policy can ‘look through’ CPI volatility, Bank of Thailand says

The Bank of Thailand (BoT) on Monday pledged to maintain its accommodative monetary policy stance to support a nascent economic recovery, saying it can “look through” short-term volatility in inflation.

“Inflation is accelerating as a result of supply-side factors,” the BoT said in a presentation at an analyst meeting. “In the current context, the monetary policy can look through the short-term volatility.” 

The monetary policy will lay more emphasis on aiding economic recovery, while policy makers will manage inflation expectations through better communication on factors contributing to price pressures, the BoT said. 

The Monetary Policy Committee left its benchmark interest rate steady at a record-low 0.5% last month even as consumer prices surged to the highest in 13 years.

With room for further fiscal stimulus narrowing amid a slow recovery in its key tourism sector, most economists expect policymakers to hold rates until early next year.

Thailand, a net energy importer, will see price pressures stay elevated through the second and third quarters of this year as a global oil supply squeeze is seen persisting, the BoT said. The headline inflation will return to its target range of 1%-3% in early 2023, it said.

“Our main goal is to oversee the demand-pull inflation, and there is still some slack in the economy such as high unemployment and weak tourism,” said Surach Tanboon, senior director of the Monetary Policy Department. 

“It’s a challenging time for BoT during this supply-shock inflation.”

Thailand’s economy faces increasing downside risks in the short term from global supply-chain disruptions, higher living costs and the persistent local Covid-19 outbreak, Sakkapop Panyanukul, the BoT’s senior director of the Economic and Policy Department, said at the same briefing. 

The central bank expects the economy to still expand this year and the next even though sanctions on Russia have fuelled energy costs and hurt global demand for its goods. The bank has forecast an economic growth rate of 3.2% this year and 4.4% expansion in 2023.

Thailand may narrow its current account deficit this year once high energy and freight costs ease and tourism recovers in the second half of this year, Mr Surach said. The country may return next year to a surplus current account, the broadest measure of trade and investment, he said.

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