Analysts are at odds over whether the Bank of Thailand will begin raising the policy interest rate for the first time in three years amid higher domestic inflationary pressure and a rising US treasury yield.
The central bank is expected to raise interest rates for the first time in three years by the end of this year to cushion against higher inflationary pressure, said Poranee Thongyen, senior vice-president of Asia Plus Securities (ASP).
Higher inflation is occurring in both developed economies and emerging Asian economies including Thailand, which should cause central banks to embark on monetary policy tightening by hiking interest rates, Mrs Poranee said.
Headline inflation in April surged to the highest level in 14 months, driven by rising prices for fresh vegetables, tobacco, alcoholic drinks, fuel, housing and furnishings, said the Commerce Ministry.
The consumer price index in April rose 1.07% year-on-year after a 0.79% increase in March. This followed an increase of 0.42% in February, which eased from a 0.68% reading in January.
Regional central banks have also began raising interest rates to counter rising inflationary pressure.
Bank Indonesia raised the interest rate twice this year to 4.75%, while Bank Negara Malaysia made an early move in January to raise interest rates to 3.25% to keep inflation in check.
The Philippine central bank also raised interest rates for the first time in more than three years to 3.25% in early May. The move is seen as a safeguard against rising inflation as the country's economy continues to gallop along at a solid clip.
"The key reason behind the faster-than-expected interest rate hike by Indonesia is rising inflation, which stood at 3.4% in April, and the continued depreciation of the rupiah, which has fallen 5.5% since hitting a historical low on Jan 5," Mrs Poranee said.
"We expect Thailand's inflation rate to reach 2% in September under the assumption that crude oil will reach US$65 per barrel and the baht will weaken to 32.50 against the dollar, with prospects of further depreciation to 33 baht by year-end."
These factors will prompt the central bank's Monetary Policy Committee to raise the policy interest rate, which stands at 1.50%, Mrs Poranee said.
The central bank last adjusted the policy interest rate in 2015 when it made two successive rate cuts in March and April of 25 basis points each to shore up sluggish economic growth.
Despite higher inflationary pressure stemming from an increase in oil prices and Thailand's continuous economic recovery, the central bank is expected to take more time to consider instituting a rate hike in order to prevent any more adverse impact on the economy, said Prapas Tonpibulsak, chief executive of Talis Asset Management.
"I think Thailand's interest rate could rise in mid-2019 when economic data shows a more solid recovery," Mr Prapas said.