Thailand’s c.bank awaits tourism revival and will hold rates for another year

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The central bank of Thailand is seen at the Bank of Thailand in Bangkok, Thailand April 26, 2016. REUTERS/Jorge Silva/File Photo/File Photo

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  • The 23 economists surveyed expect the key rate to remain stable at 0.50% on Wednesday, February 9

BENGALURU, Feb 7 (Reuters) – Thailand’s central bank will wait at least a year before raising interest rates to record lows to support the tourism-dependent economy hit hard by coronavirus-related travel restrictions, according to a Reuters poll.

The Southeast Asian nation’s economic growth has yet to return to pre-pandemic levels and the recovery remains fragile due to an outbreak of the Omicron variant of the coronavirus that has crippled crucial industry tourism.

Although inflation exceeded the Bank of Thailand’s (BOT) target range of 1-3% in January, it is expected to fall back into that range in the coming months, giving the central bank the leeway it needs to maintain an accommodating position for as long as necessary to revive growth.

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It comes despite decades-long highs for inflation in many countries, including the United States, where the Federal Reserve is due to raise interest rates next month.

Past Fed tightening cycles have led to capital outflows from less developed economies like Thailand, but analysts aren’t as worried this time around.

All 23 economists in the February 1-4 Reuters poll unanimously predicted that the BOT would hold its one-day repurchase rate (THCBIR=ECI) at an all-time low of 0.50% at its February 9 meeting and the rest of the year.

The central bank was due to raise its policy rate to 0.75% in the second quarter of 2023, followed by another 25 basis points in the December quarter of next year.

“The Bank of Thailand’s interest rate hike would likely not take place until early 2023 when Thailand’s real GDP returns to pre-COVID levels, assuming inflation and the impact normalization of U.S. interest rates remain manageable,” said Chua Han Teng, an economist at DBS.

“Thailand’s divergent monetary policy with the US Federal Reserve could lead to increased volatility in capital flows, but the BOT has more than enough reserves to weather potential swings in capital flows and weak baht.”

Indeed, the Thai baht is expected to be one of the best performing emerging market currencies, rising nearly 3% to $32.07/$ in one year, according to a separate Reuters poll.

Another Reuters survey of economists released last month showed inflation is expected to average 1.5% this year and fall to 1.2% in 2023. Thailand’s economy is expected to grow by 3.9% this year and 4.1% in 2023.

“Although there is a risk of higher inflation, we believe the inflation problem remains transitory for Thailand,” said Lattakit Lapudomkarn, economist at Kiatnakin Phatra Securities.

“However, if inflation turns out to be persistent and expectations are taking root, the key interest rate should be the primary management tool.”

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Reporting by Devayani Sathyan; Poll by Vivek Mishra; Editing by Ross Finley and Susan Fenton

Our standards: The Thomson Reuters Trust Principles.

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