The Bank of Thailand is expected to maintain the policy rate at 2.5% in its upcoming meeting later this month, as inflation slowly returns to the target range. Economists are advocating for government stimulus measures to boost the sluggish economy in addition to the digital wallet initiative.
Headline inflation rose to 0.8% last month, surpassing the consensus forecast of 0.7% and the 0.6% increase seen in June. This suggests that price increases are approaching the central bank’s target range of 1-3%, according to Maybank, which is based in Kuala Lumpur.
Core inflation increased to 0.5%, up from 0.4% in June, marking the highest level in six months, said Erica Tay, director of macro research at Maybank.
“The government may eliminate electricity subsidies in the second half of 2024, which could exert upward pressure on headline inflation. We anticipate the consumer price index (CPI) will average 0.9% in 2024, rising to 1.8% next year,” she noted in a research report issued yesterday. The central bank has observed that “consumer confidence continues to wane due to concerns over rising living costs resulting from increased energy prices, as well as worries about the sluggish recovery of the Thai economy.”
Tourism has been a significant driver of economic growth, with tourist arrivals reaching 21 million year-to-date, reflecting a 33% increase year-on-year.
“With the CPI gradually moving back towards the target range and public spending expected to increase notably in the second half of the year, the Bank of Thailand is likely to be hesitant to lower its policy rate at its meeting on August 21,” Ms. Tay stated.
Maybank forecasts a rate cut of 0.25 percentage points to 2.25% next year and has kept its GDP growth predictions at 2.4% for this year and 2.8% for 2025, she added.
Bank of America (BofA) remarked that Thailand’s CPI in July aligns with its expectations but exceeds the consensus forecast of 0.70% due to rising oil and food prices. For the first seven months of 2024, headline inflation has remained low at 0.12%.
“Thai inflation is relatively low year-on-year compared to other regional countries,” noted BofA emerging Asia economist Pipat Luengnaruemitchai.
“We expect a slight decline in August due to base effects and a decrease in certain food prices. However, inflation is anticipated to exceed 1% in the fourth quarter due to last year’s low energy price base. The current inflation trajectory aligns with the forecast set by the Monetary Policy Committee (MPC). We do not foresee this month’s inflation influencing the MPC’s policy stance.”
Nattaphon Khamthakruea, director of the securities analysis department at Yuanta Securities, and Amonthep Chawla, chief economist at CIMB Thai Bank, both acknowledged that risks remain for economic growth to fall below 2% this year, particularly if the Constitutional Court does not favor Prime Minister Srettha Thavisin on August 14.
“Second-quarter GDP growth is likely to be under 2%,” stated Mr. Amonthep. “We hope that more stimulus, especially quick-win measures, can revitalize the economy.”
