Bank of Thailand may raise policy rate following rising inflation - RHB IB

BANGKOK, July 5 (Bernama) -- The Bank of Thailand (BoT) may raise its policy interest rate following strong inflationary pressure, according to RHB Investment Bank Bhd (RHB IB).

In a research note today, its senior economist, Barnabas Gan, said the central bank is expected to hike the policy interest rate by 25 basis points (bps) to 0.75 per cent as early as September this year, and another 50 bps hike to 1.25 per cent next year.

“Note that the central bank has three more meetings for the year, and policymakers had voted four (stay) to three (hike) to maintain the policy rate at 0.5 per cent in June. This represents a clear shift away from the unanimous vote to keep the policy rate unchanged in its previous March 2022 meeting.

“Notably, both headline and core inflation as of June this year had accelerated to their multi-year highs. Overall, we think that the balance of risks has shifted since the year started – risks to economic growth appear to be subsiding while inflation concerns are gradually magnified,” he said.

The BoT is one of a few major Asian central banks that kept rates at record low at 0.5 per cent. The next meeting is scheduled to be held on August 10 and a rate rise would be the first hike since December 2018.

Meanwhile, Thailand’s headline inflation hit a near 14-year high in June.

The Commerce Ministry today said the headline consumer price index (CPI) rose 7.66 per cent from a year ago following soaring energy prices and base effects.

Meanwhile, Gan maintained the bank's 2022 headline and core inflation forecasts at 6.2 per cent (versus the Bloomberg consensus estimate of 4.9 per cent) and 2.0 per cent, respectively.

He said headline CPI inflation will likely accelerate to 8.0 per cent year-on-year in August before dissipating to around 5.0 per cent by year-end.

“Thailand has extended price caps on dozens of essential goods such as rice, sugar, medicines, fertilisers, and healthcare services until June 2023.

“Furthermore, the government has since introduced a fuel subsidy programme for three months starting June this year. These policies are expected to tame headline inflation to around 5.0 per cent by the end of this year,” he said.

Gan said headline and core inflation momentum are expected to remain elevated in the next few months before slowing at year-end.

-- BERNAMA