The Monetary Policy Committee (MPC) of the Bank of Thailand unanimously approved a quarter-percentage point increase in the policy rate, raising it from 2.25% to 2.50%. This change, which took effect yesterday, marks the highest rate since October 2013.
According to Piti Disyatat, the MPC secretary, the Thai economy is on a slow recovery path this year, primarily due to weak external demand. He expresses confidence that if the current pace is maintained, the policy rate will likely remain steady for some time.
However, the MPC has revised its growth forecast for 2023 from 3.6% to 2.8%, due to ongoing slack demand. The delayed recovery in merchandise exports and tourism has also contributed to a slight dip in growth this year. Other factors include a subdued economy in China and stagnation in the global economy.
Estimates for foreign arrivals this year have also been revised down from 29 million to 28.5 million. The 2024 outlook has been adjusted as well, from 35.5 million to 35 million.
Despite these downward revisions, the MPC remains optimistic for 2024, raising its growth projection from 3.8% to 4.4%. This optimism is based on expected improvements in domestic demand, a steady recovery in tourism, a rebound in merchandise exports, and the supportive role of government policies.
Inflation, according to the MPC, is likely to stay within the target range, at 1.6% and 2.6% for 2023 and 2024, respectively. Subsidies on living costs from the government and a high base from the previous year should keep inflation low for the remainder of the year. However, core inflation is expected to rise from 1.4% this year to 2% in 2024.
El Niño phenomenon
The MPC is keeping a keen eye on potential inflation risks, which could arise from demand-side pressures linked to economic policies and possible increases in food prices due to an intensifying El Niño phenomenon.
Piti explained that the policy rate has been normalising and approaching a neutral rate.
“If the Thai economic outlook aligns with our assessment, we would maintain the policy rate at the existing level for a while.”
The MPC has taken into account the government’s stimulus measures, such as the 10,000-baht digital wallet handout that requires an estimated budget of 560 billion baht, in its 2024 assessment.
Piti projected a 0.3-0.6 times multiplier effect from the cash handout scheme. He also hinted that next year’s growth could be around 4%, excluding the government’s stimulus measures.
The MPC is still awaiting more details on the government’s stimulus schemes, including the digital wallet handout, energy subsidy, and minimum wage hike, before finalising its economic assessment.