Bank of Thailand united in holding rates steady

Bank of Thailand united in holding rates steady

The Monetary Policy Committee (MPC) of the Bank of Thailand (BoT) on Wednesday voted unanimously to maintain its policy rate at 2.5%, the highest level in a decade, following a series of rate hikes since August last year, with the 2024 GDP growth projected to be in the range of 3.2-3.8%.

The MPC, with one member absent from the meeting, reported that the Thai economy has continued to recover, despite some slowdowns in merchandise exports and related production.

Growth is expected to be more balanced in 2024 and 2025, driven by domestic demand, the tourism sector and a recovery in merchandise exports, said MPC secretary Piti Disyatat.

Mr Piti said the policy rate is in a neutral zone and could be maintained for an extended period in line with the country's continued recovery.

The MPC projects GDP growth of 2.4% in 2023 and 3.2% in 2024, respectively. However, the inclusion of the government's digital wallet scheme has led to a revised 2024 figure of 3.8%, down from the previous assessment of 4.4%.

"Excluding the digital wallet scheme, the Thai economy will grow at a potential rate of 3.2% next year," Mr Piti said.

The overall trajectory of the economy is a continued recovery, driven by a robust expansion in private consumption, supported by service spending as well as improvements in employment and labour income, accoding to the MPC.

Although merchandise exports and tourism recovery have been slower than expected due to subdued growth in China and delayed global economic demand, the MPC anticipates a more balanced growth in the future as tourism continues to recover and merchandise exports expand.

For 2024, the MPC forecasts foreign arrivals of 34.5 million, down by 500,000 from the previous projection, with an expected increase to 39 million in 2025.

Headline inflation is projected to stay within the target range at 1.3% in 2023 and 2% in 2024.

When the digital wallet scheme is included in the outlook, inflation is forecast at 2.2% in 2024, down from 2.6% in the previous assessment.

The lower headline inflation this year is in part because of the high base last year as well as temporary factors such as energy price subsidies and lower than expected raw food prices, said the committee.

Meanwhile, core inflation excluding the digital wallet scheme is expected to be 1.3% and 1.2% in 2023 and 2024, respectively.

Mr Piti said the MPC is attentive to risks from higher food prices because of the El Niño phenomenon and a potential increase in global energy prices arising from the Middle East conflict.

In addition, the committee views the salary increase for new civil servants will not have a significant impact on the inflation rate, he said.

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