Bank of Thailand Maintains Key Rate Amid Economic Challenges

The Bank of Thailand held its key interest rate steady for the fourth consecutive meeting on Wednesday, aligning with widespread expectations despite ongoing government pressure to lower borrowing costs to aid economic recovery.

In a decision by the central bank’s Monetary Policy Committee, the vote was 6-1 to keep the one-day repurchase rate steady at 2.50%, marking the highest rate seen in over ten years. During their last meeting on April 10, the committee voted 5-2 in favor of maintaining the current rate.

A recent Reuters poll, involving 27 economists, indicated that the majority did not anticipate a change in the benchmark rate this week, with only three economists suggesting a quarter-point reduction.

The government has consistently advocated for a rate reduction to help revive an economy that has underperformed compared to its regional counterparts for much of the past decade and is poised for another disappointing year.

Out of 26 economists who offered a rate forecast until the end of 2024, 15 predicted a decrease to 2.25% or lower by year-end, while 11 expected it to remain at 2.50%.

Following the meeting, the committee released a statement noting that economic growth continues, primarily fueled by domestic demand and tourism, although export growth is slow due to increased competition affecting some Thai products.

“The majority of the committee deems that the current policy interest rate is consistent with the economy converging to its potential, as well as conducive to safeguarding macro-financial stability,” the statement said.

“One member voted to cut the policy rate by 0.25 percentage points to reflect Thailand’s lower potential growth due to structural challenges, and to partly alleviate the debt-servicing burden for borrowers.”

The central bank projects economic growth of 2.6% for the current year and 3% for 2025, driven by stronger-than-expected domestic demand in the first quarter, a sustained tourism recovery, and accelerated government spending in the second quarter.

“Going forward, uncertainties surrounding exports and manufacturing recovery as well as the impact of government stimulus measures should be monitored in the second half of the year,” the statement added.

Committee members voiced concerns about the high levels of household debt and emphasized that credit growth should align with ongoing efforts to reduce debt for long-term financial stability.

The Bank of Thailand asserts that reducing interest rates would have minimal impact on an economy that requires significant structural reforms. It also remains cautious about the possibility of rising inflation after a period of low rates.

The statement projected a gradual increase in inflation, reaching the central bank’s target range of 1-3% by the fourth quarter of 2024, with an average headline inflation of 0.6% for this year and 1.3% in 2025.

“Inflation has turned positive and is expected to increase as the effects from the domestic diesel price subsidy and excess supply of certain raw food items are gradually phased out,” it said.

Recent data revealed that the Consumer Price Index (CPI) escalated to a 13-month peak of 1.54% in May, with further increases expected in June.

The Ministry of Commerce attributed the CPI rise to the low base price of electricity from the previous year, escalating gasoline prices, and significant increases in prices for fresh foods, vegetables, and eggs.

April’s CPI showed an increase of 0.6%, marking the first rise after seven months of sub-zero figures.

The next meeting of the Monetary Policy Committee is scheduled for August 21.