Thailand’s central bank announced it will raise interest rates on Aug. 10 for the first time in four years from a record low as the central bank shifts its focus from economic growth to rising inflation.
High inflation, a global phenomenon due to broken supply chains, has also hit Thailand. It has been above the central bank’s target of 1 to 3% since early 2022, reaching a 14-year high of 7.66% year-on-year in June and remaining at that level in July.
But so far, the Bank of Thailand (BOT) is keeping its key interest rate unchanged to support economic growth. Although last month signaled that monetary policy will gradually tighten to fight inflation.
The change was evident in June when calls for a rate hike were heard and three of seven monetary policy members voted in favor of a rate increase.
According to a survey, 17 out of 20 economists predicted the Bank of Thailand will raise its key interest rate by 25 basis points to 0.75% on Wednesday from a record low since May 2020, while only three people expect a 50 basis point hike.
The weaker Thai baht, which has fallen by around 8% so far this year, has not exerted any pressure on rising prices.
“The depreciating Thai baht vs the U.S. dollar, partly driven by diverging monetary policies due to an aggressive Fed, could pose upside risks to Thailand’s imported inflation,” said Chua Han Teng, an economist at DBS.
“Foreign reserves have been deployed to blunt excessive currency volatility.”