MNI STATE OF PLAY: Thai CB Faces Lower Growth, High Inflation

Thailand’s central bank will consider rising inflation and the likelihood of slower growth as hawks and doves on the Monetary Policy Committee meet to discuss interest rates this week.

The Bank of Thailand is not expected to change its one-day repurchase rate on Wednesday from a record low of 0.50%, but policy makers face a dilemma on inflation, a weaker baht and a stalled economic recovery, see: MNI INSIGHT: Bank Of Thailand Caught In A Policy Dilemma.

NEXT MOVE A QUESTION

The BoT is expected to hike rates in 2023, but MNI understands there is still a dovish element at the bank who could put the argument for continuing with accommodative policy.

These views were evident last August, when two members of the committee voted to cut rates. At the same time, rising inflation could create conditions for an earlier than expected interest rate rise, as advocated by policy hawks.

The central bank is expected to provide an update on its growth and inflation forecasts this week, and growth estimates could be downgraded from the current 2022 forecast of between 3.5% and 4.5%.

ENERGY COSTS, BAHT

The global energy crisis has already impacted on Thai inflation, which came in at a higher than expected 5.28% in February, against the BoT’s 1% to 3% target range. Core inflation is at 1.8%.

The monetary policy meeting is also likely to discuss the weakening of the baht, which has declined over the past month to around 33.7 against the USD.

With the US Fed set for a series of rate hikes, Thai policymakers are focused on the baht's slide far from around the 32 to the USD level, which is understood as the BoT’s preferred exchange rate target.