The pace of Thailand’s economic recovery, spurred by more tourism, is giving the country’s central bank more scope to raise interest rates to fight inflation, according to the World Bank.
Southeast Asia’s second-largest economy is likely “to gain momentum and reach pre-pandemic levels in the fourth quarter,” driven by the drop in Covid-19 cases and relaxation of border restrictions, according to a report Wednesday.
“Thai rate normalization can start soon, so they can raise the policy rate at a gradual pace in line with the economic recovery. Fighting inflation, now at a 14-year high, is important as it risks putting more Thais into poverty, especially with food and energy prices under pressure from the war in Ukraine. Kiatipong Ariyapruchya, World Bank senior economist, at a briefing in Bangkok.
The agency expects headline inflation to stay at a 14-year high over the course of 2022, at 5.2%. The Bank of Thailand’s target is a range of 1%-3%.
“As Thailand moves into the recovery phase, it will be important to make progress on fiscal consolidation while rebalancing public spending towards public investment to help support the government’s vision to build back better and greener,” Kiatipong Ariyapruchya.
Thailand’s monetary policy committee kept its key interest rate unchanged at a record low 0.5% for a 16th straight meeting in a split decision early this month. Still, minutes from the decision said that further delays to dealing with inflationary pressures may cause “greater costs” to the economy.
The World Bank sees gross domestic product expanding 2.9% this year. In a separate report, Moody’s Analytics forecasts GDP growth of about 3.5% in 2022, “with robust exports and the return of foreign tourists supporting the economy.”