An interest rate hike of at least 0.5% by the Bank of Thailand's Monetary Policy Committee (MPC) tomorrow would be enough to shore up the baht, which has depreciated by 11.5% against the greenback this year to date, analysts said.
A Reuters's poll of 25 economists found that nearly 90% of them predicted the central bank would raise its benchmark one-day repurchase rate by 25 basis points to 1.00% at its Wednesday meeting.
Only three expected a bigger 50 basis-point hike. Bloomberg's poll of 17 economists also found that 13 of them expected the MPC to lift the rate only by 0.25% and the other four expect a 0.50% hike.
The expected increase, its second in a row, was anticipated after the US Federal Reserve (Fed) delivered its third straight 75 basis-point hike last week, sending the dollar index to a new two-decade high and putting more downward pressure on the Thai currency.
The US central bank also signalled that it would continue with aggressive rate hikes until next year.
As a result, Pi Securities indicated that only a 0.25% rate hike by the MPC is not able to help slow down the baht's depreciation, noting the current gap between the rate in Thailand and the US is quite large.
"But if it is up 0.50%, there is a possibility that the baht would appreciate though it would be only short term because the gap is still wide," an analyst at the brokerage firm said.
If the baht continues to depreciate, it will put pressure on foreign fund flows, the analyst noted, adding that the MPC's rate hike will send a signal to large commercial banks that they might have to follow suit.
The baht slipped to 37.75 per dollar yesterday, a 16-year low, as the British pound slumped to a record low of $1.10 for the first time since 1985, after traders ramped up bets on the scale of interest-rate hikes by the Bank of England.
Pi Securities said investors are concerned about high inflation, rate hikes and the potential recession. Oil prices also slipped yesterday, falling 4.8% for Brent crude, as market worries about demand would disappear if the economy falls into recession.
Kasikorn Securities also expects the MPC to raise the policy rate by 0.25%. Finansia Syrus Securities, meanwhile, forecasts the MPC would lift the rate by 0.25% at each of the two remaining meetings this year.
That would make the policy rate reach 1.25% at year-end and the MPC is expected to raise it two more times next year, also 0.25% each to 1.75% next year to lessen the gap with the US rate, Finansia Syrus said.