The Monetary Policy Committee (MPC) of the Bank of Thailand is expected to maintain the policy interest rate at 2.5% during its upcoming meeting, as reported on Wednesday. This decision comes as a result of an uptick in May’s inflation rates, along with the anticipation of a similar stance from the US Federal Reserve in its meeting this week.
The central bank is also closely monitoring the volatility of the Thai baht.
May’s headline inflation reached 1.54%, marking the second consecutive month of positive growth following a 0.19% increase in April. This surpassed market expectations of 1.2%, primarily driven by the low base effect from last year’s electricity tariff adjustments and rising food costs.
Maybank’s joint report by Director of Macro Research Erica Tay indicated that this was the first instance since April 2023 that inflation has fallen within the Bank of Thailand’s target range of 1-3%. However, underlying pricing pressures in the economy remained subdued.
Maybank, based out of Kuala Lumpur, forecasts Thailand’s consumer price index to experience an average growth of 0.9% for this year and 1.8% in 2025.
Given the earlier-than-expected return of inflation to the targeted range and ongoing energy cost disruptions due to supply chain issues, there are diminished reasons for a rate cut at the upcoming policy meeting on June 12, according to Maybank.
The central bank is expected to keep a watchful eye on inflation throughout the remainder of the year, even amidst uncertain GDP growth prospects, per the banking group.
Although increased public infrastructure projects are predicted to bolster second-half GDP growth to 3.3%, other economic drivers like exports have shown decreased momentum. Maybank now projects a 2.4% expansion for the Thai economy this year, a downgrade from the initial 3.2% estimate.
Lalita Thienprasiddhi, the Head of Researchers at Kasikorn Research Center, foresees that the MPC will maintain the policy rate at its current decade-high level of 2.5% this Wednesday.
At its previous meeting, the committee indicated that the interest rate is well-suited to uphold economic and financial stability. This rate is deemed appropriate to preserve the central bank’s flexibility in facing future uncertainties, she mentioned.
Anticipating the Federal Reserve to maintain US rates during its June 11-12 session, Lalita predicts that the Bank of Thailand will emphasize baht stability, especially in light of the Fed’s expected prolonged stability of US rates.
The Bank of Thailand is poised to track developments closely as global economic conditions evolve, including any potential adjustments in US monetary policy.
