Bank of Thailand Holds Key Interest Rate at All-Time Low

The Bank of Thailand (BoT) announced Wednesday that it would leave its key interest rate unchanged at a record low, supporting the economy’s fragile recovery as the government ramps up efforts to revive the pandemic-hit tourism sector and deal with rising inflation risks.

In its 14th consecutive meeting after three rate cuts in 2020, the BoT’s Monetary Policy Committee decided to keep the one-day repurchase rate at 0.50% through a unanimous vote.

According to a Reuters news agency poll to 23 economists, the BoT was expected to remain on hold until 2022.

Mitul Kotecha, chief emerging markets Asia & Europe strategist at TD Securities in Singapore, said the BoT was “likely to remain somewhat cautious about the economic outlook in the wake of rising Covid cases. However, its job will have become more complicated.”

“With inflation rising and major central banks becoming more hawkish, pressure to shift policy will grow in the months ahead,” he added.

Worldwide governments struggle to recover their economies amid Covid-19 outbreaks and inflationary pressures. But Southeast Asian nations face particular risk from an upcoming interest rate hike by the US Federal Reserve.

Singapore has tightened the policy twice in the last four months, and Indonesia has turned hawkish.

Yesterday’s reports showed the baht was up 0.1% at 32.89 per dollar at 2:17 p.m. local time. Also, the benchmark SET Index Stock hit its highest level since August 2019 after extending its day’s gains to 1.3%.

Meanwhile, the Thai government outlines measures to control key food and fuel prices to help minimize inflation’s impact on consumers. In January, prices accelerated by 3.23%, a figure above the central bank’s policy target range. 

The BoT said headline inflation would be higher than the 1.7% forecast issued in December for 2022 and could exceed the target range early in the year while staying within the upper bound. However, the bank should only worry if inflation remains high for a long time, said Assistant Governor Piti Disyatat after reporting the decision.

“We haven’t seen a broad-based price increase yet, so we are not too concerned about overall inflation for now. Inflation exceeding the target is normal, and it doesn’t mean we need to adjust the rate right away as long as we have credibility,” Mr. Piti said.