The Central Bank of Thailand raised its base rate for the first time in more than three years and signaled that it would take the necessary steps in the future to fight inflation without hindering economic recovery.
The bank’s monetary policy committee on Wednesday decided to raise its one-day repurchase rate by 25 basis points to 0.75%. Before that, the last time the rate was raised was in December 2018.
“The Committee views that the policy rate should be normalized to the level that is consistent with sustainable growth in the long term,” the Bank of Thailand said in a statement. “Monetary policy normalization should be done in a gradual and measured manner consistent with the growth and inflation outlook in the period ahead.”
The baht fell 0.5% against the dollar, which Scotiabank’s Qi Gao attributed to slower gains. “Maybe investors are worried about tonight’s US CPI that may surprise on the upside again,” he said. The benchmark Thai stock index was down 0.6%.
The action comes after months of central bank statements about the need to raise rates in order to avoid large movements in the future to combat inflation above the target level. The gradual hike was backed by Finance Minister Arkhom Termpittayapaisith, who stressed that growth must be sustained by doing it differently from the Philippines and India, which each raised their discount rates by more than 100 basis points in response to Federal Reserve tightening.
The Thai government expects gross domestic product growth of 3.3% this year, in line with the central bank’s June forecast. In 2022, the pace of expansion will be among the slowest in Southeast Asia.
The central bank said that Thailand’s economy will continue to recover due to an increase in the number of foreign tourists while noting the risks to recovery due to the rising cost of living.
Headline inflation of 7.61% last month was slightly below June’s 7.66%, but still well above the central bank’s 1% to 3% target. Growth in base prices, excluding volatile food and fuel, was almost 3% in July compared to 2.51% a month earlier.
Inflation will remain high throughout 2022, largely unchanged from the previous forecast, before gradually falling to its target range in 2023.
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