Thailand raises rates for first time since 2018

Thailand’s central bank today (August 10) raised its record-low benchmark interest rate for the first time in more than three years to fight inflation, as the country’s economy rebounds amid strong tourism growth.

The Bank of Thailand’s rate-setting committee voted 6–1 to hike the policy rate by 25 basis points to 0.75%.

The only board member who dissented argued that a 50bp rise this time could reduce the risk of having to deliver more aggressive rate increases later.

“The committee judges that the Thai economic recovery will continue to gain traction, and thus the extraordinarily accommodative monetary policy will become less needed,” the central bank said.

Headline inflation in Thailand rose 7.6% in July from a year ago.

Thailand had kept its interest rate at a record low of 0.5% since May 2020 to stimulate the Covid-battered economy. The last time it raised its policy rate was in December 2018.

The BoT signalled more rate hikes in the future. “The committee views that the policy rate should be normalised to the level that is consistent with sustainable growth in the long term.”

“Monetary policy normalisation should be done in a gradual and measured manner consistent with the growth and inflation outlook in the period ahead.”

The Thai economy is expected to return to pre-Covid levels by the end of this year and will continue to gain traction, the central bank said. Economic activity has been supported by a recovery of travel and tourism, while labour market conditions and household incomes are also improving.

The central bank expects headline inflation to remain high throughout the year, before gradually falling into the target range in 2023 as supply-side inflationary pressures subside.