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Thai Central Bank Raises Key Rate For First Time Since 2018

thailandbank dec19 10aug22 lt

The Bank of Thailand raised its key interest rate for the first time in over three-and-a-half years as inflation is expected to remain above the target throughout this year.

The Monetary Policy Committee voted 6 to 1 to raise the policy rate by a quarter-point to 0.75 percent, the central bank said on its website.

One MPC member sought to raise the policy rate by 50 basis points.

The latest hike was the first since December 2018, when the policy rate was raised by 25 basis points to 1.75 percent. The previous change in the rate was a quarter point cut in May 2020.

The committee observed that the economic recovery will continue to gain traction and the extraordinarily accommodative monetary policy will become less needed.

The committee viewed that the policy rate should be normalized to the level that is consistent with sustainable growth in the long term. The policy normalization should be done in a gradual and measured manner consistent with the growth and inflation outlook.

In July, consumer price inflation slowed to 7.6 percent, but well above the central bank's 1-3 percent target.

Inflation is forecast to remain high throughout this year, before gradually falling into the target range in 2023 as the supply-side inflationary pressures subside. The inflation outlook is still subject to upside risks, including potentially higher and faster cost pass-through to core inflation, the bank noted.

As the central bank reiterated that the tightening cycle will be gradual, the policy rate will peak at 1.5 percent next year, Capital Economics economist Gareth Leather said.

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