Three of the seven monetary policy committee members voted in favour of raising rates by a quarter of a percentage point, according to the central bank’s announcement. The narrow vote reflects the pressure central bankers are under to tamp down inflation, which hit a 14-year high of 7.1% in May.
All 20 analysts polled by Reuters before the decision predicted the Bank of Thailand would stand pat.
The BOT has not moved its policy rate since May 2020, and the last time it raised rates was in December 2018.
Also on Wednesday, the BOT upwardly revised its annual inflation projection to 6.2% from 4.9%. In addition, it revised its growth projection for 2022 to 3.3%, up 0.1% from the previous projection. For 2023, it now sees growth of 4.2%, down 0.2%.
The BOT also noted a recovery in domestic consumption of services. In the statement, the committee’s majority continued to prioritise economic growth, expecting exports to keep growing and more international tourists arriving as the country relaxes its Covid entry rules.
The number of foreign arrivals, however, is unlikely to reach the pre-pandemic peak of nearly 40 million as long as China’s zero-Covid policy and the war in Ukraine prevent Chinese and Russian tourists from visiting in droves. Tourism accounts for 12% of Thailand’s gross domestic product.
The monetary policy committee’s statement on Wednesday marks a shift in its economic outlook, turning from the Covid-19 pandemic to external factors. Daily new infections have been on the decline since peaking during the mid-April Songkran holiday.
The statement notes that supply-side pressures in commodities continue to weigh heavily on Thailand, a net importer of oil and gas. The higher cost of energy and raw materials may depress business profits and investment, clouding this year’s GDP forecast.
Analysts at Kasikorn Research Center project an economic contraction in the second quarter due to these factors. There was currently “no urgent need” to raise rates, they wrote, but the BOT may be induced to implement one or two hikes, each of 25 basis points, this year if the US Federal Reserve accelerates its monetary tightening.
The Fed is expected to raise rates seven more times this year, including a projected hike of 50 basis points at its June meeting next week.
Pressure on the central bank will also increase if the interest rate spread widens between Thailand and its neighbours, risking capital outflows and further depreciation of the baht. The Thai currency has been trading at a five-year low since mid-May, above 34 baht to the dollar.