According to high core inflation, the Thai central bank plans to increase rates further as they are not yet at a neutral level.

Thailand’s central bank plans to gradually tighten its policy further as the benchmark rate is not yet at neutral levels and core inflation remains high, according to officials. Policymakers have increased rates six times since last August to contain inflation. The Bank of Thailand expects to keep raising the one-day repurchase rate to reach levels consistent with the country’s long-term economic growth prospects. Despite having returned to pre-pandemic levels, Southeast Asia’s second-largest economy has yet to reach its potential growth rate. BOT assistant governor Piti Disyatat stated that the economy would eventually reach its potential growth of three to four percent but was currently below that rate.

The BOT forecasts economic growth of 3.6 percent this year and 3.8 percent next year, with some upside risks. Last year’s growth was 2.6 percent. The economy has been propelled by the tourism sector, while exports remain weak. The BOT estimates foreign tourist arrivals to be 29 million this year and 35.5 million next year.

The central bank’s policy committee voted on May 31 to raise the one-day repurchase rate by a quarter point to 2 percent, its highest level in eight years. Piti stated that the monetary policy committee still considered the financial condition or the policy interest rate to be in a slightly accommodative zone compared with the neutral rate of 2.5 percent. The BOT’s next policy review is due on August 2, with some economists anticipating a pause on rate hikes while others expect another rise.

The central bank’s minutes, released on Wednesday, cautioned that higher minimum wages might result in a wage-price spiral. Despite headline inflation dropping below the central bank’s target range of one to three percent to 0.53 percent in May, the bank expects prices to rise again as demand-driven pressures increase later this year, according to Surach Tanboon, senior director of BOT’s monetary policy department. Surach added that core inflation was likely to remain elevated, making inflation risks high, especially in 2024.

The BOT predicts that average headline inflation will be 2.5 percent this year and 2.4 percent next year, with core inflation at 2 percent in both years.

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