The Bank of Thailand's Monetary Policy Committee (MPC) voted unanimously yesterday to raise the policy rate by a quarter percentage point from 2.25% to 2.50%, effective immediately, the highest level since October 2013.
MPC secretary Piti Disyatat said the economy is continuing to recover this year, albeit at a slower pace because of soft external demand. He said if the Thai economy maintains its projected pace, the committee expects to keep rates steady for a while.
Given the weak demand, the committee cut its growth forecast for 2023 from 3.6% to 2.8%.
Growth this year softened somewhat from a delayed recovery in merchandise exports and tourism, as growth is subdued in China and the global economy is stagnant.
The committee also cut its estimate for foreign arrivals this year from 29 million to 28.5 million, while for 2024 the outlook dips from 35.5 million to 35 million.
However, the MPC increased its growth projection for 2024 from 3.8% to 4.4%. Growth is expected to pick up next year based on domestic demand, underpinned by a steady tourism recovery and a turnaround in merchandise exports, with additional support from government policies, said Mr Piti.
Headline inflation is projected to remain within the target range, at 1.6% and 2.6% in 2023 and 2024, respectively, according to the MPC.
Government living cost subsidies and a high base last year is expected to keep inflation low for the rest of this year, said Mr Piti.
Meanwhile, core inflation should pick up from 1.4% this year to 2% in 2024, said the committee.
He said the MPC is attentive to inflation risks, stemming from possible demand-side pressures related to economic policies and higher food prices should the El Niño phenomenon intensify.
"The policy rate has been normalising and approaching a neutral rate," said Mr Piti. "If the Thai economic outlook is in line with our assessment, we would maintain the policy rate at the existing level for a while."
He said the committee included the government's stimulus measures in its 2024 assessment, in particular the 10,000-baht digital wallet handout that requires an estimated budget of 560 billion baht.
"Based on the cash handout, we assess a 0.3-0.6 times multiplier effect under the scheme," said Mr Piti.
Given the economic base, growth next year would be around 4% excluding the government's stimulus measures, he said.
The MPC is awaiting clearer details regarding the government's stimulus schemes, including the digital wallet handout, energy subsidy and minimum wage hike, before making its economic assessment.
Mr Piti said the committee expects the digital wallet will be implemented, but it wants more details on the sources of funding, the form of the handout and the period of implementation.
Financial market volatility picked up, with rising bond yields and baht depreciation against the US dollar as market participants wait for further details on the government's economic policies.
The baht has weakened by 5.2% against the dollar this year as of Tuesday, the lowest rate among regional currencies, though the baht movement is in line with its regional peers, he said.