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Bank of Thailand Keeps Interest Rate Unchanged, Defying Government Pressure
The Monetary Policy Committee voted unanimously to maintain the policy rate at 2.25 percent due to the Thai economy’s close-to-potential trajectory, inflation moving towards the target range, and the need to safeguard long-term macro-financial stability.
Bank of Thailand Interest RateThe Bank of Thailand has decided to maintain its benchmark interest rate at 2.25%, defying government calls for monetary easing. This decision reflects the central bank’s confidence in the current economic trajectory, balancing concerns over inflationary pressures with the need to support growth.
Key Takeaways
- The Thai economy is projected to expand by 2.7 and 2.9 percent in 2024 and 2025, driven mainly by tourism, domestic demand, and exports of electronics and machinery, although recovery remains uneven across sectors.
- The Committee aims to monitor uncertainties stemming from major economies’ policies, the impact on Thailand’s financial markets, and the implications for economic activities, while seeking to maintain price stability, support sustainable growth, and preserve financial stability through its monetary policy framework.
Recent Developments
In October 2024, the Bank of Thailand surprised markets by cutting its policy rate by 25 basis points to 2.25%, marking the first rate cut since 2020. However, in December 2024, the Monetary Policy Committee voted unanimously to keep the one-day repurchase rate steady at 2.25%, citing rising uncertainties and a focus on maintaining stability.
Economic Outlook
The Bank of Thailand’s decision reflects its evaluation of the economic outlook, indicating that a neutral policy rate aligns with current conditions. The Thai economy is projected to expand by 2.7% in 2024 and 2.9% in 2025, driven by key factors such as a rebound in tourism, increased domestic spending, and rising exports of electronics and machinery, bolstered by a global recovery in the technology sector.
No Immediate Changes Expected
With the interest rate remaining steady at 2.25%, there are no immediate changes expected for borrowers or savers. The Bank of Thailand’s decision is aimed at maintaining stability and supporting the economy’s growth prospects, rather than responding to short-term market fluctuations.
The Bank of Thailand’s decision to maintain its interest rate unchanged, despite government pressure, demonstrates its commitment to monetary policy independence and its focus on long-term economic stability. The central bank’s priorities are aligned with its mandate, and its decision is likely to have a stabilizing effect on the financial system and the economy.
The Thai economy is expected to grow by 2.7% in 2024 and 2.9% in 2025. Key drivers of this growth include tourism, domestic spending, and exports of electronics and machinery, supported by a global recovery in technology. However, the recovery remains uneven across sectors. While tourism-related services have improved, small businesses and some manufacturing industries are struggling due to reduced competitiveness. For instance, the automotive industry has been negatively impacted by lower prices and demand. This has led to uneven income recovery for households. Looking ahead, uncertainties in major global economies could affect Thailand’s exports and private investments, making it important to closely monitor these developments.
Headline inflation is anticipated to reach 0.4% in 2024 and 1.1% in 2025. Energy inflation is expected to stay subdued due to stable global crude oil prices. Core inflation is projected at 0.6% in 2024 and 1.0% in 2025, aligning with the economic outlook and the gradual cost passthrough of food items. Overall, medium-term inflation expectations remain well-anchored and consistent with the target.
Source : https://www.bot.or.th/en/news-and-media/news/news-20241218.html
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