BoT keeps rate steady, but hints at coming hike

BoT keeps rate steady, but hints at coming hike

The Bank of Thailand has signalled it might raise the policy rate in the future because of a faster than expected Thai economic recovery, aiming to control the rising inflation rate.

The central bank's Monetary Policy Committee (MPC) meeting yesterday voted 4-3 to maintain the policy rate at its existing level of 0.5%, said MPC secretary Piti Disyatat.

Three members voted to raise the policy rate by 0.25 percentage points.

The committee assessed the Thai economy will continue to recover and could expand faster than previously expected owing to stronger domestic demand and an increase in foreign tourists. Headline inflation is expected to increase and remain elevated for longer than previously estimated because of the increase in oil prices and higher cost pass-through, said the MPC.

"With this scenario, the committee deems that a very accommodative monetary policy will be less needed going forward," Mr Piti said.

However, to ensure the recovery will continue to gain traction as anticipated, most members voted to maintain the policy rate in this meeting and will reassess the risks to growth and inflation going forward.

The three dissenting members believe policy normalisation was warranted now, given the increased upside risks to both growth and inflation.

The MPC will assess the appropriate timing for a gradual policy normalisation in accordance with the shift in the outlook and risks surrounding growth and inflation, he said.

Mr Piti said the MPC weighed the impacts of raising the interest rate and a rising inflation rate. Higher prices mainly affect lower-income households, he said.

The MPC found the inflation rate would increase household expenses by around 850 baht per month or 3.6% of total monthly income. The MPC assumes a policy rate hike of 100 basis points would raise household expenses by 120 baht per month or 0.5%. As a result, a rising inflation rate would have a greater impact on households than a policy rate increase.

The Trade Policy and Strategy Office reported headline inflation in May was 7.1%, a 13-year high.

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