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The Bank of Thailand will deliver another 25 basis-point rate hike on Wednesday

Modest rate hike comes even as inflation is at 14-year high.

The Bank of Thailand will deliver another 25 basis-point rate hike on Wednesday, its second in a row, even as many of its peers opt for larger increases to fight high inflation, a Reuters poll showed on Monday.

Despite inflation in Thailand jumping to a 14-year high in August, the recovery in Southeast Asia’s second-largest economy has lagged that of others as its vital tourism sector struggles to rebound, prompting the BOT to move slowly on rate hikes.

BOT Governor Sethaput Suthiwartnarueput said earlier this month the central bank’s rate rises would be gradual and measured to ensure the economy’s smooth recovery which he expects to return to pre-pandemic levels late this year or early next.

His rate view matched the majority outlook in the Sept. 19-26 Reuters poll of economists.

Some 22 of the 25 economists surveyed, or nearly 90%, predicted the BOT would raise its benchmark one-day repurchase rate (THCBIR=ECI) by 25 basis points to 1.00% at its Sept. 28 meeting, back where it was before the COVID-19 pandemic.

“Policy tightening is slower than in other countries but consistent with the still weak domestic economic recovery, given Thailand’s dependence on tourist arrivals,” said Charnon Boonnuch, economist at Nomura.

“Because of the sharp decline in energy prices and the recent drop in inflation expectations, we do not see the need for the BOT to be aggressive in raising its policy direction.

Down nearly 11% this year, the baht hit its lowest level in nearly 16 years on Wednesday. A weaker currency keeps imports expensive and inflation elevated.

While exports and tourism benefit from a weak local currency, sticky inflation erodes real incomes and exacerbates inequality and poverty, a major issue for the government ahead of scheduled general elections due by May.

However, forecasts for end-2023 ranged from 1.00% to 2.50%, suggesting uncertainty around policy direction.

“A diminishing stock of ammunition to protect their currencies will put Asian central banks under pressure to undertake a deeper tightening cycle, but this could come at the cost of slower growth,” said Krystal Tan, economist at ANZ Bank.

“Notably, central banks in Indonesia and the Philippines hiked their policy rates by 50bp last week, and we expect their counterparts in Thailand…to follow suit,” added Tan, who forecast a 50 basis-point hike at the September and November meetings.

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