Rising rates set to dent Thai business costs
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Rising rates set to dent Thai business costs

The Bank of Thailand’s latest decision to increase its policy rate, to the highest level in 10 years, is expected to lead to another round of rising financial costs among manufacturers amid baht depreciation, says the Federation of Thai Industries (FTI).

Analysts said earlier that the baht may become weaker this month because of higher volatility in money and capital markets worldwide after the US Federal Reserve’s comments regarding its benchmark interest rate.

The baht slid continuously late last month as both the dollar and US 10-year bond yields continued to rise on the Fed’s suggestion that it may lift interest rates one more time this year, while signalling fewer rate cuts in 2024.

In Thailand, the new policy rate is causing concerns among businesses as they will encounter higher financial costs at a time when people’s purchasing power remains weak and the economy has yet to fully recover, said Kriengkrai Thiennukul, chairman of the FTI.

The central bank’s Monetary Policy Committee (MPC) voted unanimously on Sept 27 to raise the policy rate by a quarter percentage point, from 2.25% to 2.50%, effective immediately.

The increase was based on the country’s economy, which continues to recover, albeit at a slower pace.

MPC secretary Piti Disyatat said earlier that if the economy maintains its projected pace, the committee expects to keep rates steady for a while.

The committee cut its economic growth forecast for 2023 from 3.6% to 2.8% as growth this year softened from a delayed recovery in merchandise exports and tourism, while growth is subdued in China and the global economy is stagnant.

Economic slowdown in China is another factor for baht volatility because Thailand and China are highly economically related, according to media reports citing central bank governor Sethaput Suthiwartharueput.

A weaker baht is not good for Thai manufacturers, especially those who need to import raw materials and machinery, as their costs will increase.

“The manufacturing sector has so far been worried about high operating costs driven by expensive raw materials and energy. This may cause them to increase goods prices or delay production,” said Mr Kriengkrai.

The FTI expects the global crude oil price to stand at around US$100 per barrel later this year because of a combination of factors, including higher energy demand in the winter and the impact of Russia’s announcement earlier this year to cut its oil output from March until the end of 2023.

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