Bank of Thailand governor Veerathai Santiprabhob has reaffirmed that ultra-loose monetary policy is nearing an end, saying rate-setters will consider a suitable time to raise the policy rate after the necessity of accommodative monetary policy has dwindled.
The need for ultra-low interest rates is fading because of the broader-based economic recovery and normalisation of other central banks led by the advanced economies, Mr Veerathai said, adding that the central bank will nonetheless take inflation, the improving economic momentum, financial stability and policy space into account.
"Global interest rates are gradually rising and we can't buck the trend, but timing depends on appropriateness," he said. "The interest rate hike decision must take several factors, including inflation and the economic recovery trend, into consideration."
But raising interest rates to some extent does not indicate a sudden reversal of monetary policy, he said.
The Monetary Policy Committee (MPC) has signalled future hikes over the past two meetings after the US Federal Reserve's benchmark rate of 1.75-2% exceeded Thailand's policy rate, left unchanged at 1.5% since April 2015.
The MPC's last policy rate hike was in August 2011, when the committee raised the rate a quarter percentage point to 3.5%.
Mr Veerathai said separately that the MPC would also consider revising its GDP growth forecast for the year at next month's meeting after GDP growth came in at 4.6% in the April-to-June quarter.
The 4.6% growth was in line with the central bank's forecast, he said.
The MPC at June's meeting upgraded its economic growth outlook to 4.4% for 2018 and 4.2% for 2019, up from 4.1% for both years.
Mr Veerathai said central banks across the world have moved to normalise rates after hewing to an unconventional monetary policy over the past 10 years.
The rate hikes by major economies led by the Fed have sent currencies around the world, including the baht and other Asian denominations, into wild swings.
"Foreign exchange volatility is expected to continue and be heightened," Mr Veerathai said. "It also could be the new normal for both global and local economies."
Based on this assumption, currency risk management is an important thing for local business operators. The Bank of Thailand and its counterparts in the region jointly support payment and settlement in local currencies through several schemes.
Mr Veerathai said payment and settlement in local currencies of Thai business operators have continued to increase, as seen by the fact that business exposure between the baht and the yuan has been on the rise, compared with a marginal level of 0.2-0.3% in 2011.
The recent sharp depreciation in Turkey's lira has had a limited impact on the baht, he said, because of Thailand's strong economic fundamentals, sound international reserves and low level of foreign debt.