Gradual hike in policy rate to limit side effects: BoT minutes
Delaying hike in rates could pose more risks
published : 22 Jun 2022 at 14:14
The Bank of Thailand's (BoT) rate committee held its key interest rate steady earlier this month, but noted that gradual hikes would allow the economy to adjust smoothly and limit negative side effects, minutes of the meeting showed on Wednesday.
The BoT is one of the few major Asian central banks to have kept rates at record lows since the pandemic, though the comments in the minutes indicate a more hawkish turn.
With heightened inflationary risks, delaying policy normalisation could entail greater costs to the economy as high inflation would impede recovery by lowering real incomes and weakening purchasing power, the minutes of the Monetary Policy Committee (MPC) said.
On June 8, the MPC voted 4-3 to keep the one-day repurchase rate at a record low of 0.50%. The three dissenters voted for a 25 basis-point rise.
Most economists expect the BoT to hike the rate at its next policy review on Aug 10, to tame inflation that hit the highest level in more than 14 years in May.
With the economy gaining traction and inflationary risks rising, a very accommodative monetary policy would be less necessary and the committee would assess the timing for gradual tightening, the minutes said.
Monetary policy should be "flexible and agile in order to move in a timely manner," the minutes said.
"The committee also saw a need to build policy space to be able to address possible future risks".
The BoT forecasts economic growth of 3.3% this year and inflation of 6.2%, above its target range of 1% to 3%.
Southeast Asia's second-largest economy could grow faster than projected, but the outlook for 2023 remained uncertain, the minutes said.
The weakening of the baht was in line with regional currencies, the minutes said. The baht was trading at a more than five-year low against the dollar.