By Devayani Sathyan

BENGALURU (Reuters – Thailand’s central bank will keep interest rates low at 0.50%, at least until 2023. The country’s heavily tourist-driven economy is likely to struggle to achieve rapid growth despite having received quarantine-free travelers.

The first immunized visitors to Bangkok were allowed by the Southeast Asian country on Monday, in an attempt to revitalize an economy that was struggling after the fall of its tourism industry.

However, only half of the expected foreign tourist arrivals this year are higher than those in pre-COVID-19. This will slow down the recovery from the recession-driven pandemic.

This, together with low inflation will allow the Bank of Thailand to maintain a loose monetary policy for longer periods of support to growth.

On the contrary, the Nov. 1–5 Reuters poll found that 21 economists predicted the central banks would keep its one day repurchase rate at 0.50% until the end of next fiscal year.

A smaller number of forecasters were willing to go further out and only two of them predicted a rate rise of 25 basis points in the first three months of 2023.

“Tourism makes up a large part of our economy, and it is difficult to see how this can be rediscovered so quickly. Phacharaphot Nutramas, chief economist of Krung Thai Bank (the country’s second largest bank), said that many target countries, including China, do not permit people to travel overseas.

Locally, 2023 is expected to be the year that tourism returns in greater force. The speed at which the BOT hikes in 2023 will determine if it does.

Thailand is a popular destination for tourists in Asia-Pacific. They had imposed strict entry restrictions that were criticized by the industry as being too costly and economically damaging.

There have been more than 3 million jobs in Thailand that are dependent on tourism and an average of $50 billion annually lost.

Southeast Asia’s second largest economy faces a potential COVID-19 outbreak. Only half of its residents are fully vaccinated. With Christmas and New Year fast approaching, more people could become vaccinated.

This along with China’s economic slowdown is a sign that there are low chances of an increase in the rates anytime soon.

Charnon Boonnuch from Nomura, an economist, stated that “we think there is a low risk.”

Boonnuch indicated that central bank officials expect inflation to remain close to the lower bound between 1% and 3% of their target range. This gives policymakers more flexibility to maintain rates at lower levels for longer than some other central banks.

Inflation has risen around the globe due to rising energy costs and supply-chain disruptions. Inflation has been kept under control by government measures, including a subsidy for tuition fees and utility bills.

Due to higher vegetable and oil prices, inflation rose to 2.388% in October. It could be pushed higher by a weaker currency called the baht, which has fallen 10% this year.

The BOT will be pushed eventually to increase interest rates similar to its peers.

Lattakit Lapudomkarn (economist at Kiatnakin Phatra Securities) stated, “The MPC was known to have been relatively hawkish due its concerns on financial instability risk and high household debt levels.”

We believe that they will feel more at ease following the U.S. Federal Reserve, normalizing the policy rate during the first half 2023.

Devayani Sathyan reported and polled; Ross Finley edited. Steve Orlofsky edited.