Thailand Signals Gradual Moves After First Hike Since 2018

Thailand’s central bank raised the benchmark policy rate for the first time in more than three years and signaled to stick with measured moves going forward to fight inflation without derailing the economy’s recovery.

The bank’s monetary policy committee on Wednesday decided to increase the one-day repurchase rate by 25 basis points to 0.75% as forecast by 24 of 27 economists in a survey. The remaining three had predicted a 50-basis-point hike. The rate was last increased in December 2018.

“The committee views that the policy rate should be normalized to the level that is consistent with sustainable growth in the long term,” the Bank of Thailand said in a statement. “Monetary policy normalization should be done in a gradual and measured manner consistent with the growth and inflation outlook in the period ahead.”

Thai 2-year bond yields dropped by 4 basis points after the expected move, while the baht fell as much as 0.5% against the dollar, which Scotiabank currency strategist Qi Gao attributed to the outlook for a slower pace of hike. The benchmark stock index was down as much as 0.8% before trading 0.4% lower.

Wednesday’s action follows months of central bank speaking on the need to raise rates sooner to avoid large moves later to fight above-target inflation. A gradual approach was already favored by Finance Minister Arkhom Termpittayapaisith, who on Monday underlined the need to preserve growth, putting Thailand on a slightly different path from peers Philippines and India which have each raised their policy rates by more than 100 basis points in response to the Federal Reserve’s tightening.

Agencies