People walk past the entrance to the Chang Chui night market in the Thonburi district of Bangkok, Thailand. (Photographer: Brent Lewin/Bloomberg)

Thailand Hikes Rates as Southeast Asia Nations Diverge on Policy

(Bloomberg) -- The two biggest economies in Southeast Asia are on different interest-rate paths: Thailand kicked off its hiking cycle while Indonesia is nearing the end.

The Bank of Thailand raised its one-day bond repurchase rate for the first time since 2011, lifting it to 1.75 percent from 1.5 percent on Wednesday, in line with most economists’ forecasts. Indonesia’s central bank is set to keep its key rate on hold at 6 percent on Thursday after 175 basis points of hikes since May to stem a rout in its currency.

Thailand Hikes Rates as Southeast Asia Nations Diverge on Policy

The policy decisions come against the backdrop of rising U.S. rates, a rebound in emerging markets and weaker global growth prospects.

“This was a dovish hike - similar to Korea’s one-off hike,” said Trinh Nguyen, a senior economist at Natixis in Hong Kong.  “Inflationary pressures remain low and manufacturing is weak so the BoT will likely be done with this hike.”

The Bank of Thailand is the last of the main Southeast Asian central banks to tighten monetary policy this year, concerned about a subdued economic growth environment and still low inflation.

Policy makers have been making it clear in recent weeks that a hike is imminent as it seeks to ward off risks stemming from a prolonged period of low rates. Governor Veerathai Santiprabhob has said the central bank may raise rates and then pause, a view backed by the chairman.

Key Details of Thailand Interest Rate Decision
  • Five of the seven monetary policy committee members voted to raise the rate by 25 basis points, while two called for no change
  • All but five of 19 economists surveyed by Bloomberg predicted the decision
  • The central bank cut its growth forecast for this year to 4.2 percent from 4.4 percent. Expansion slowed to a two-year low of 3.3 percent last quarter
  • Inflation projection retained at 1.1 percent average in 2018

Read: Thailand may copy Malaysia in taking slow steps in raising rate

The baht has been among the most stable currencies in Asia this year, compared to large declines in the Philippine peso and Indonesian rupiah, allowing the central bank to keep policy unchanged for most of 2018.

What Our Economists Say...
The BOT acted to build policy space and curb financial stability risks, not because of currency wobbles or inflation getting out of hand. What’s more, Thai domestic demand continues to gain traction and the outlook for household spending and investment in 2019 remains relatively solid. While a pause is likely at the next meeting in February, another 25-50 basis points of tightening later next year can’t be ruled out.

-- Tamara Henderson, Bloomberg Economics

The global and domestic environment may be more uncertain next year, with Thailand set to hold an election in February after more than four years of military rule.


Bank Indonesia has taken a front-loaded approach to policy in the face of rising U.S. rates, with six hikes since May, including a surprise move last month, to help bolster the currency. The rupiah has had some respite this quarter, gaining more than 3 percent against the dollar as emerging markets rebounded, giving Bank Indonesia more reason to pause.

Inflation remained subdued at 3.2 percent in November, well within the central bank’s 2.5 percent to 4.5 percent target band. A current-account deficit above 3 percent of gross domestic product remains a key risk for Indonesia.

Thailand Hikes Rates as Southeast Asia Nations Diverge on Policy

“Indonesia’s economy has performed well with stability maintained as growth momentum endures,” Bank Indonesia Deputy Governor Dody Budi Waluyo said by text message. "The economic gains have been complemented by efforts to reduce the current-account deficit to within a manageable threshold."

Indonesia is also facing an election next year. The economy is expanding at about 5 percent, short of the 7 percent targeted by President Joko Widodo when he came to power four years ago. Widodo is boosting cash handouts to the poor and fast-tracking infrastructure projects.

©2018 Bloomberg L.P.