BANGKOK (Reuters) – The following is the statement from the Bank of Thailand after it unanimously raised its key interest rate by 25 basis points to 1. 25%, as expected by economists polled by Reuters. , as follows:
Thailand’s economy will continue to gain momentum as tourism and private consumption continue to recover due to the return of Chinese tourists. Meanwhile, merchandise exports will slow this year but are expected to improve at 2024 as the global economy recovers.
Overall inflation expectations have declined, while core inflation remains high, and the risk of demand-side inflationary pressures brought about by economic recovery has increased. The Committee believed that continued gradual policy normalization was the appropriate approach for monetary policy consistent with the outlook for growth and inflation, and voted to raise the policy rate by 0.25 percentage points to the current Meeting.
Thailand’s economy is expected to continue growing. With the return of Chinese tourists, the tourism industry will show a faster recovery. This would help more broadly to improve employment and incomes in the service sector and the self-employed, who account for a large share of total employment. These improvements will support continued expansion of private consumption.
Meanwhile, merchandise export growth will slow this year but is expected to recover in 2024 with global growth expected to bottom out in
. The Committee assesses that downside risks to the global economy have been reduced given the improving outlook in both advanced economies and China.
Headline inflation is expected to decline. Supply-side inflationary pressures will continue to recede as global energy and commodity prices fall. Core inflation is expected to remain elevated for some time before gradually declining. At the same time, medium-term inflation expectations remain within the target range.
However, core inflation is likely to remain elevated for longer than expected as pass-through effects are likely to increase due to higher costs. In addition, a recovery in tourism could add to demand-side inflationary pressures. Accordingly, the Committee will continue to monitor inflation risks closely.
The overall financial system remains resilient. Commercial banks maintain high levels of capital and loan loss reserves. As the economy recovers, the ability of households and businesses to service their debts has improved. However, the financial situation of some SMEs and households remains fragile, sensitive to rising living costs and debt burdens.
The Committee believes that financial institutions should continue to pursue debt restructuring and believes that targeted measures and sustainable solutions are important for vulnerable groups.
Overall financial conditions are less accommodative. The cost of funds has risen as policy rates have been raised and cuts to the Financial Institutions Development Fund (FIDF) contributions have expired.
However, bank lending and bond issuance continued to increase. The Thai baht strengthened against the dollar on expectations the Federal Reserve will tighten monetary policy less aggressively and China eased international travel restrictions, which would benefit Thailand’s tourism sector. Nonetheless, the Committee will continue to closely monitor developments in financial markets and volatility in foreign exchange markets.
Stable under a monetary policy framework aimed at maintaining prices, supporting sustainable and full economic growth potential, and maintaining financial stability, the committee judged that the Thai economy Recovery is still on track.
However, the risk of rising demand-side inflationary pressures must be monitored. Policy rates should be normalized in a gradual and measured manner to levels consistent with long-term sustainable growth. The Committee is prepared to adjust the size and timing of policy normalization if the growth and inflation outlook deviates from its current assessment.