BoT: Government change not a factor in rate policy
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BoT: Government change not a factor in rate policy

Central bank will keep moving towards rate ‘normalisation’ based on inflation trends

“We would like to build more policy space,” says Bank of Thailand deputy governor Mathee Supapongse, who favours another rate increase. (Photo: Reuters)
“We would like to build more policy space,” says Bank of Thailand deputy governor Mathee Supapongse, who favours another rate increase. (Photo: Reuters)

The Bank of Thailand says there is no need to wait and see what policies are formulated by the new government before deciding whether or not to raise interest rates further.

The central bank aims to continue normalising interest rates and the recent election and efforts to form a new administration should have no bearing on monetary policy, deputy governor Mathee Supapongse told reporters on Thursday.

Despite recent increases, Thai interest rates are still considered low due to cuts during the Covid pandemic. The central bank has pledged to gradually return them to normal levels consistent with long-term economic growth prospects.

Mr Mathee stressed that the central bank needed to take a different view than elected officials.

The policies of all political parties are largely aimed at stimulating the economy, but the effect of monetary policy will take time to be felt, he said.

The economy is in recovery and is expected to return to its potential growth level next year, Mr Mathee said.

“We would like to build more policy space. But in deciding rates, there are several committee members so I can’t tell whether there will be a hike or not next time,” he said.

“But in my view, I want to continue to normalise,” said Mr Mathee, who sits on the Monetary Policy Committee.

Last week, the BoT raised its key interest rate by a quarter point to 2.00%, citing elevated core inflation. It has increased the rate by a total of 150 basis points since August of last year.

The central bank will next review policy on Aug 2, when some economists see a rate pause given falling inflation.

However, others expect the policy rate to be lifted one or two additional times this year because of an upside risk to inflation as the economy recovers.

Annual headline inflation in May slumped to its lowest in 21 months of 0.5%, below the central bank’s target range of 1% to 3%, while the core inflation rate stood at 1.55%.

Mr Mathee said the below-target inflation was seen as temporary, though this year’s average figure should stay within the target range.

The central bank, however, is ready to adjust the pace and timing of policy normalisation if the outlook for growth and inflation shifts.

Last week, it forecast average headline inflation at 2.5% this year and 2.4% next year.

The BoT also maintains its forecasts for economic growth at 3.6% this year and 3.8% next year. The economy expanded 2.6% in 2022.

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