By Devayani Sathyan and Anant Chandak

BENGALURU (Reuters). Thailand’s central bank is expected to keep interest rates stable at record lows for the rest of this year, in order to help economic recovery. But, a Reuters poll has shown that there are increasing calls for a rate hike earlier due inflationary risk.

Inflation in Thailand reached 4.65% in April, driven by rising energy and food prices. It is expected that it will stay above 5% for the next few months. This well exceeds the Bank of Thailand (BOT’s) target of 1%-3%.

Economists predict that the central bank will continue to be supportive of growth despite the price pressures.

A drop in COVID-19 case numbers and loosening restrictions led to Thailand’s March quarter GDP growth of 1.1%. That is a 0.9% higher rate than was expected in a separate Reuters poll.

However, China’s zero-COVID policies and low tourism arrivals pose challenges to recovery.

The poll of 20 economists was conducted May 30-June 3, and all predicted that the central bank would maintain its one-day rate for repurchase at 0.50% on its June 8 meeting, as well as keep it at this level throughout the rest of the year.

Chua Han Teng from DBS economist stated, “While we believe that the Bank of Thailand will remain on hold until 2022,”

We refer specifically to the scenario in which BOT moves its emphasis away from economic assistance and toward taming or keeping up global rate rises. It signals that rate increases would be imminent for 2H22.

MOVE EARLIER

The median poll forecast showed that the first rate increase would occur in the first quarter 2023, which is the same as the April poll. However, some economists predicted that the BOT might move earlier.

Surprisingly, more than one third of the 20 respondents anticipated a rate rise of at least 25 basis points by Q4 2022. This includes two people who predicted it would come in as early as next quarter.

Only two economists polled expected a quarter-point increase in 2022, according to the April poll.

Krystal Tan from ANZ, an economist noted that the BOT could become less dovish as a result of increasing domestic inflation and a faster global rate-hiking trend.

“A sustained recovery would enable the BOT to begin shifting its focus toward anchoring domestic inflation expectancies in the coming months, as well as gradually withdrawing the pandemic-era stimulation.”

Although forecast medians indicated that interest rates would reach their pre-pandemic level of 0.75% by Q1 2023 (prediction medians), predictions varied from 0.50% up to 1.50%. This suggests uncertainty about policy direction.

Sixteen out of seventeen saw rates hovering around 0.75% as of March 31, while four other forecasters said rates would rise to 1.00% by the end. Rest of the seven remaining forecast rates will remain at 0.50%.

In the latest poll, Q2 2023 was shifted to Q3 2023 to reflect the expectation of a 25-basis point rate increase. This would bring the rate up to 1.00% where it is expected to stay until next year.