MNI STATE OF PLAY: Inflation Puts Thai CBank Under Pressure

Thailand is experiencing a 14-year high inflation rate and the baht is weakening, but this is not expected to result in a change of policy settings at this week’s meeting of the Bank of Thailand.

The BoT has held its policy rate steady at 0.50% since May 2020, and while it had been expected to continue to hold rates unchanged for most of this year there are mounting pressures to tighten, (See MNI STATE OF PLAY: Thai CB Faces Lower Growth, High Inflation).

May consumer inflation data released this week showed prices surged by 7.1% in May to the highest level since 2008, and well above the BoT’s target range of 1% to 3%. Inflation has been steadily rising since it hit 5.3% in February.

THAI BAHT, DOVISH FACTION

The baht, meanwhile, has continued to weaken and is now at just under 35 against the USD, down around 10% over the last 12 months and lower than what is understood to be the BoT’s preferred level of around 31 to 33.

There is a dovish faction within the BoT’s Monetary Policy Committee, and while they may succeed in maintaining policy at the current accommodative settings this week the economic indicators suggest the doves will come under some pressure.

The doves can point to core inflation, which after stripping out a 37% year on year increase in energy and food prices is at 2.28% as justification for keeping rates on hold. The BoT’s rates decision will be announced on Wednesday afternoon in the Asian time zone.