BoT Delivers Another +25bps Hike, Signals Tightening Not Over Yet
Fifth +25bps Rate Hike, Policy Rate Highest Since July 2019
The Bank of Thailand voted unanimously to raise the policy rate by +25bps (to 1.75%) for the fifth straight meeting, in line with our and consensus expectations. The committee was of the view that a continuation of gradual policy normalization was appropriate, as the economy continued to recover on the back of tourism and private consumption, while headline inflation remains above the BoT’s target range (click here for monetary policy statement).
The BoT signalled that its tightening cycle may not be over yet. Assistant governor Piti Disyatat stated in the briefing that “with all the data that we have now, we think the rate normalization should continue”. BoT added that there is room for lenders and borrowers to cope with rising financial costs from gradual rate hikes.
Small Downgrade to BoT’s GDP Forecast to +3.6% in 2023
BoT shaved its GDP growth forecast for 2023 slightly to +3.6% (Maybank forecast: +4%) from +3.7% in Nov (see Table 1). Tourism will be the key growth driver, which will lift employment and income, and support private consumption. BoT raised its tourist arrivals forecast to 28mn in 2023 (from 25.5mn in Jan) with China arrivals rising significantly in the second half of the year (see Fig 4). Tourist arrivals in 1Q23 (Jan to 27 Mar) was reported at 6.15mn, exceeding the governments’ target of 6mn.
BoT added that goods exports are showing signs of rebounding after declining late last year, and should gain momentum in the second half of the year. However, the committee also acknowledged that global economic uncertainty has risen from persistently inflationary pressures and banking stresses in advanced economies.
Headline Inflation to Return to Target Range by Mid-Year
BoT cut its 2023 inflation forecasts slightly for both headline CPI (+2.9% from +3% in Nov) and core CPI (+2.4% from +2.5% in Nov). BoT expects headline inflation to return to its target range (1%-3%) by middle of the year amid easing supply-side pressures, especially from electricity and oil prices (see Fig 2). However, BoT cautioned that persistently high inflation remains a risk, as producers could pass on higher costs absorbed in the past while demand-side pressures could pick up with the economic recovery.
Financial System Resilient, Little Impact from Global Bank Crisis
The BoT highlighted that the local banking sector will see limited impact from the US and European banking crisis, as Thai banks have limited linkages with the troubled banks and risky assets. Total exposure of local banks to start-ups and fintech firms globally accounts for less than 1% of Thai banks’ capital. The BoT does not allow Thai banks to invest directly in digital assets (see Thailand Banks – Low impact from US/EU banking crisis, 22 Mar 2023), while their subsidiaries have invested in digital assets worth only around Bt200mn (US$5.8mn). The BoT added that the ongoing economic recovery is helping to improve debt serviceability for households and businesses.