Thai central bank to raise rates 25 bps, tourism to bolster growth

(Corrects to remove extraneous words from text)

By Devayani Sathyan

BENGALURU (Reuters) – Thailand’s central bank is expected to raise interest rates by 25 basis points on Wednesday to curb elevated inflation and further hikes are likely even as China’s reopening brightens the economic outlook, a Reuters poll found.

Unlike its neighbours in Malaysia and Indonesia, The Bank of Thailand (BOT) is expected to keep tightening policy for awhile longer. While price pressures in Southeast Asia’s second-largest economy have been cooling, inflation in December was still 5.89%, well above the central bank’s 1-3% target.

Twenty-one of 23 economists polled by Reuters expected the BOT to raise its benchmark one-day repurchase rate by 25 basis points (bps) to 1.50% on Jan. 25. The remaining two forecast no change.

“Given inflation is still high and you have upcoming demand-side pressures coming from the recovery of tourism…the BOT would like to continue normalizing rates in a gradual and measured manner,” said Aris Dacanay, economist at HSBC.

“Because of mainland China reopening borders much earlier and much faster than a lot of people expected…we do expect Thailand to grow faster than trend. This gives the BOT room to continue hiking rates, to continue anchoring inflation expectations.”

GRAPHIC – Reuters Poll graphic on Thailand economy and repo rate outlook

https://fingfx.thomsonreuters.com/gfx/polling/akveqaykbvr/Reuters%20poll%20Thailand%20economy%20and%20repo%20rate%20outlook.PNG

Thailand, one of Asia’s popular tourist destinations, is expected to receive at least five million Chinese tourists and a total of 25 million foreign visitors this year, providing a much needed boost to its battered economy.

But that is still lower than the 40 million foreign tourist arrivals recorded in 2019.

The poll showed Thailand’s economy is expected to expand 3.7% and 3.8% this year and next, respectively, in line with the government’s projections.

Over 60% of respondents, 14 of 22, expected another hike of 25 bps to 1.75% by end-March. Seven forecast 1.50% and one said it would still be at 1.25%.

The poll median showed the central bank would then raise borrowing costs by another 25 bps, taking it to 2.00% by end-September.

“Although inflation is set to ease this year amid high base effects, we expect both the headline and core prints to stay above the mid-point of the BOT’s 1-3% target band in the coming quarters,” noted Irene Cheung, senior Asia strategist at ANZ.

“The combination of improving growth prospects and still-elevated inflation gives the central bank room to continue reducing policy accommodation.”

Poll medians showed inflation would average 2.8% this year and then fall to 1.9% in 2024.

(This story has been refiled to remove extraneous words.)