Thailand’s monetary policy decision makers will pay more attention to the role of low real interest rates in “engendering a build-up of economic imbalance,” a report showed Wednesday, as the central bank reiterated its stance of a gradual tightening amid lingering inflation concerns.
(Bloomberg) — Thailand’s monetary policy decision makers will pay more attention to the role of low real interest rates in “engendering a build-up of economic imbalance,” a report showed Wednesday, as the central bank reiterated its stance of a gradual tightening amid lingering inflation concerns.
Low real interest rates have the potential to pose risks to long-term financial stability, according to the minutes of the meetings held by the Monetary Policy Committee in March, and released on Wednesday. The appropriate level of real rates would be one relevant consideration for monetary policy deliberation looking ahead, it said.
The real rates — the effective rate discounted by inflation — should not be negative when the economy is growing at 3% to 4% annually, Bank of Thailand Assistant Governor Piti Disyatat told an analyst meeting. He declined to specify a level for the real interest rate, but said it should be aligned with the state of the economy.
Thailand’s central bank has raised its key rate at five straight meetings by a quarter point each, shunning the more aggressive hikes followed by authorities in the Philippines and Indonesia. While the tightening has helped return headline inflation to Bank of Thailand’s target range for the first time since the end of 2021, risks of demand-driven price pressure linger, BOT estimates.
BOT’s “gradual and measured” policy normalization has lifted its benchmark one-day repurchase rate to 1.75% but the headline inflation was at 2.83% in March.
“Our economy is on the right path for a solid recovery. So the real interest rate should not be negative,” Piti said. “Still, we maintain our gradual normalization of the monetary policy as our recovery is on a slow path.”
A continued policy normalization will help lessen the risk of inflation staying persistently above central bank’s 1% to 3% target range, the MPC said. Although inflation had recently slowed, there remained upside risks from higher cost pass-through and demand-side price pressures, it said, noting persistently high inflation, in turn, might affect price-setting behavior and price expectations.
The rate panel also saw upside risks to Thailand’s 2023 GDP growth from stronger-than-expected tourist arrivals and associated boost to labor income and domestic demand. The economy may expand 3.6% this year before accelerating to 3.8% next year, the BOT said last month.
–With assistance from Pathom Sangwongwanich.
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