BoT says growth could exceed 3% in the second quarter
Bank of Thailand Governor Sithaput Suthiwartnaroyput speaks during his first briefing on the economy and monetary policy after taking office on October 20, 2020 (Reuters)
The Bank of Thailand believes that Thailand’s economic growth may increase by 3% in the second quarter, mainly due to a pickup in domestic consumption with the central bank’s commitment to maintain flexible inflation targeting.
The central bank said economic indicators are pointing to a healthy recovery, buoyed by private consumption.
The private consumption index in the first quarter of this year expanded by 2.9% year on year.
The Governor of the Bank of Thailand, Sithaput Suthiwartnaroiput, said that the central bank expects the number to rise to 9.9% year-on-year in the second quarter of 2022.
Nonfarm income in the first quarter, excluding government assistance programs, improved to 9.2% year over year from a 4.2% contraction in 2021.
The figure is expected to rise to 10.3% in the second quarter of this year.
Farm income, excluding government assistance schemes, is expected to rise 16.7% in the second quarter from 6.6% in the first.
Some sectors, especially exports and manufacturing, improved, but the tourism and services sectors recorded a weak recovery.
The number of foreign tourist arrivals increased after the country reopened. For 2022, the central bank estimates the number of travelers from abroad to 6 million under the base scenario, although the figure could rise by the end of this year.
“If the number of tourist arrivals exceeds expectations, the rate of economic growth may be higher than our assessment,” Sitaput said.
The central bank expects a GDP growth rate of 3.3% this year.
The bank said that every million additional foreign tourists exceeding estimates should boost GDP by 0.4 percentage points.
Given the trend of economic recovery, policy normalization is needed to ensure a smooth recovery.
He said that the central bank plans to conduct a gradual normalization of monetary policy, in balance with economic growth, price stability and the stability of the financial system. As a result, any rate increase in the policy should not be too late, Sitaboth said.
“Given the current rise in inflation, we are prioritizing inflation, with the central bank committed to maintaining our inflation target in the medium to long term through monetary policy,” he said.
“After policy normalization, the Bank of Thailand expects the inflation rate to enter the target framework next year.”
The central bank expects headline inflation to peak in the third quarter at 7.5%, and then decline gradually.
For 2023, the bank expects inflation to be 4.1% in the first quarter, 2.5% in the second quarter, and then decline to 1.7% in the third and fourth quarters.
Sethabot said the rate hike will not affect the overall economy immediately, but rather it will be gradual. However, price action will affect sentiment immediately.
He said that the interest rate increase would not significantly affect existing borrowers, especially individual borrowers. About 60% of all retail loans are charged at a fixed interest rate.
Sethabot said that despite the mortgages being charged at variable interest rates, the monthly debt repayments are flat.
“New borrowers will be affected by the interest rate hike, so they should consider income and debt repayment capacity before applying for a new loan,” he said.
Sethabot said that the normalization of monetary policy will have side effects, but they will be insignificant compared to the impact from higher inflation.
If the interest rate rises by 1%, the financial burden on the household sector will increase by 0.5% on average, according to the central bank.
Meanwhile, higher inflation, on an annual basis, increased household sector expenditures by 3.6%.
In addition, the spread between the Bank of Thailand and the US Federal Reserve policy rates of 1.25% did not affect the inflow of foreign capital, as the net inflow of foreign capital into the Thai market reached 3.5 billion US dollars since the beginning of the year, according to the bank. Thailand.
About 86% of the baht’s movement is attributable to the movement of the US dollar, Sitabot said, an uncontrollable factor.