BOT Sees Inflation Above 4% Into 2024, Holds Rates
The Bank of Thailand projects headline inflation will reach nearly 4% in late 2023 and early 2024, driven by rising oil and fresh food costs, before easing later next year. The Monetary Policy Committee kept its policy rate steady to support economic recovery, while flagging risks from Middle East tensions, energy subsidy limits, and business cost pass-through. Domestic fuel prices may not drop as fast as global rates due to the need to rebuild the Fuel Fund.
Bank of Thailand Assistant Governor Don Nakornthab revealed that the October inflation data released by the Ministry of Commerce closely matches the assessment made by the Monetary Policy Committee (MPC) at its meeting last week. At that meeting, the MPC assessed that headline inflation would accelerate in October and stabilize near 4% year-on-year in the fourth quarter of this year and the first quarter of 2024, driven by oil and fresh food prices as key supply-side factors. However, inflation is expected to decline significantly in the remaining quarters of next year. The MPC therefore voted to keep the policy rate unchanged to support the economic recovery, given limited risk of inflation remaining persistently high. Nevertheless, the MPC will monitor risks that inflation could exceed projections, stemming from high uncertainty around the Middle East conflict, constraints on energy price subsidy measures, the pass-through of business costs to core inflation, and medium-term inflation expectations, to inform policy decisions at the next meeting. Regarding the U.S. midterm election results, markets increasingly expect pressure on the U.S. government to resolve its conflict with Iran, reflected in a sharp drop in Brent crude prices from $105.2 to $96.2 per barrel between November 3 and 4. However, the stance of President Trump post-election must still be watched, as uncertainty has increased and escalation of attacks is possible. Mr. Don noted that domestic oil prices may not fall as quickly as global prices due to the need to recoup losses in the Fuel Fund, and the overall impact on inflation will also depend on how businesses pass costs through to prices of goods and services.
