Bank Of Thailand On The Cusp Of Tightening Monetary Policy

Key View

• We expect the Bank of Thailand to hike its policy rate by 50bps to 1.00% by end-2022, from 25bps previously, after policymakers signalled a more hawkish stance at its June 8 policy meeting despite keeping interest rates on hold.
• Inflation has continued to climb to a near 14-year high of 7.1% y-o-y in May, and we have revised our average 2022 inflation forecast to 6.3%, from 5.2% previously.
• A relatively robust economic recovery will provide policy room for the central bank to hike interest rates over the coming months.

We at Fitch Solutions have revised our expectation for the Bank of Thailand (BoT) to raise its policy rate by 50bps to 1.00% by end-2022, versus 0.75% previously and Bloomberg consensus of 0.65%. This comes after the Monetary Policy Committee (MPC) voted 4-3 to maintain the policy rate at 0.50% at its monetary policy meeting on June 8, with three members opting to raise the policy rate by 25bps. We note that the central bank has decidedly turned more hawkish since its previous meeting on March 30 when the MPC voted unanimously to keep interest rates on hold. Moreover, it was cited in the latest press release that ‘the Committee deems that a very accommodative monetary policy will be less needed going forward’ and ‘will assess the appropriate timing for a gradual policy normalization’. We expect elevated inflationary pressures, a relatively robust economic recovery, and still-tightening global monetary conditions to prompt the central bank to hike interest rates over the coming quarters.