The Bank of Thailand on Wednesday raised its benchmark interest rate to the highest level in 10 years, as it moved pre-emptively to check inflationary pressures from the government’s proposed economic stimulus.
The central bank's Monetary Policy Committee (MPC) voted unanimously to increase the one-day repurchase rate by a quarter-point to 2.50%, as predicted by 10 of 21 economists in a Bloomberg survey. The rest had expected no change.
The benchmark interest rate has not been this high since October 2013.
While price gains are running below the central bank’s 1-3% target, policymakers are seeking to build defences against future inflation stoked by loose fiscal policy.
The Consumer Price Index in August rose by 0.88% year-on-year, up from 0.38% the month before.
“Additional pressure from government policies on the economy and inflation must be monitored,” the BoT said in a statement posted on its website after the rate decision.
“Monetary policy should ensure that inflation is within the target range in a sustainable manner and help enhance long-term economic and financial stability.”
The Pheu Thai government led by Prime Minister Srettha Thavisin has announced a number of measures ranging from energy subsidies to cash handouts and debt suspension to spur economic growth.
The latest BoT rate decision comes as the baht has weakened more than 4% this month, making it the worst performer among 12 Asian currencies tracked by Bloomberg. The country’s sovereign bonds have also underperformed, amid concerns about additional government borrowing to finance the new government’s stimulus measures.
The centrepiece of Mr Srettha’s economic stimulus is 560 billion baht in spending to provide 10,000 baht each to an estimated 55 million individuals over age 16. The money will be distributed through a digital wallet and must be used within six months, with the programme expected to be rolled out in the first quarter of 2024.
Along with fresh energy subsidies, a three-year debt suspension for farmers, visa waivers for Chinese tourists and plans to raise the minimum wage, the new government sees economic growth hitting at least 5% annually starting next year.
The government claimsd these steps are necessary to cope with challenges ranging from slowing global demand, geopolitical tensions, high household debt and El Nino weather.
The Bank of Thailand predicts 2.8% growth in GDP this year, improving to 4.4% next year, on “important momentum” from private consumption. It projects inflation will average 1.6% this year and 2.6% in 2024.
“Inflation is likely to increase in 2024 in line with the economic recovery and pressure on the supply side from the El Niño phenomenon,” it said, noting that food prices are a particular concern if El Niño is more severe than expected.