The Bank of Thailand has maintained its GDP growth forecast for next year at 4.4%, inclusive of the government's economic stimulus measures, says assistant governor Piti Disyatat.
The Monetary Policy Committee (MPC) voted on Sept 27 to raise its benchmark interest rate by a quarter-point to 2.5%, the highest level in a decade.
The MPC also cut its growth forecast for 2023 from 3.6% to 2.8%, yet hiked its outlook for next year from 3.8% to 4.4%.
Prime Minister Srettha Thavisin and Deputy Finance Minister Julapun Amornvivat predicted the government's planned 560-billion-baht digital wallet policy, as well as the expansion of domestic trade and investment schemes, will lead to economic expansion of 5% next year.
Mr Piti said the government's planned stimulus measures next year will produce a fiscal multiplier of 0.3-0.6%, meaning for every 100 baht spent the GDP will increase by 30-60 baht.
He said the gradual policy rate hikes by the MPC since August 2022 represents an appropriate approach and the current policy rate is close to a neutral level.
The central bank determines policy by focusing on keeping inflation under control and promoting a smooth economic recovery, said Mr Piti.
GDP in the second and third quarter recovered based on domestic demand for private consumption, he said.
Non-farm and farm incomes have also continued to recover, exceeding the pre-Covid level, said Mr Piti.
Foreign arrivals increased dramatically from 5 million at the start of the policy rate normalisation in August 2022 to 20 million at present, he said.
The unemployment rate has been steadily declining from a peak of 6% during the pandemic to 2.6% now, said Mr Piti.
"The economy rebounded as anticipated and continues to recover following our policy of gradual rate hikes," he said.
SUSTAINABLE PATH
The key variable for sustainable growth is inflation, as inflation was uncomfortably high last year mainly because of rising food and oil prices, said Mr Piti.
"The policy rate should be normalised to a level that is consistent with sustainable growth in the long term," stated the central bank.
"However, food and energy prices represent only 20-30% of the country's inflation basket. Higher oil prices are mostly dependent on the global market. Even though the global oil price has been rising and is higher than last year, the increase has not been continuous."
As a result, the central bank predicts Thailand's inflation surge is going to be short-lived.
Thailand's inflation swing occurred over a relatively short period of time, only one year, while advanced economies such as the US and UK are still experiencing high inflation since the first quarter of 2021, said Mr Piti.
Looking forward, recent commodity price increases and a recovery in growth will provide inflationary pressures, he said.
Mr Piti noted the central bank's rate hikes have been gradual and can be adjusted if necessary, with Thai interest rates rising two percentage points compared with four percentage points for developed countries.
He said Thailand should be rated as having the lowest interest rates in the world, while its monetary policy has not slowed the economy.
Private sector funding costs increased consistent with the policy rate, while the slowdown in private credit growth partly reflected a normalisation of lending activity after an uninterrupted expansion during the pandemic, said Mr Piti.
Sakkapop Panyanukul, senior director of the economic and policy department at the central bank, said economic growth should accelerate strongly next year as private consumption is expected to increase to 4.6% as a result of government's stimulus measures as well as more investment in large state projects.
Domestic demand in the second quarter of this year expanded 3.8%, up from 2.9% in the first quarter. Consumer confidence and employment figures also continued to improve, according to the regulator.
The central bank believes domestic demand can gain further traction next year, even excluding the government's stimulus measures.
Although the number of foreign arrivals is estimated to be 28.5 million this year, slightly less than a previous estimate of 29 million as the Chinese market sags, tourism continues to recover and is expected to tally 35 million foreign arrivals next year, said Mr Sakkapop.
In terms of export value, it is expected to contract by 1.7% this year and expand by 4.2% in 2024.
Phurichai Rungcharoenkitkul, director of the monetary policy strategy office at the central bank, said it is necessary to limit credit expansion, which was relatively high during the pandemic period.
The higher interest rates affected funding costs, reflected by the country's rising debt burden, he said.
The debt burden for mortgage and corporate loans is 170-180% of GDP in Thailand, yet emerging economies have a lower ratio than Thailand.
"If the government decides to use monetary policy to stimulate the economy in the future, it must be because the economy is facing a crisis," said Mr Phurichai.
