The Thai economic recovery has continued to gain traction, driven mainly by tourism and private consumption. Headline inflation remains at a high level as cost pass-through has increased in the recent period despite declining commodity prices. The overall growth and inflation outlook is consistent with the previous assessment. The Committee deems that a gradual policy normalization remains an appropriate course for monetary policy, and thus votes to raise the policy rate by 0.25 percentage point at this meeting.

The Thai economy is projected to continue growing at 3.3 percent in 2022 and 3.8 percent in 2023, driven mainly by tourism and private consumption. The tourism sector recovers faster than expected as the number of foreign tourists continues to rise. Moreover, the economic recovery has become more broad-based, both in terms of business sectors, especially services, and in terms of income distribution. Meanwhile, the slower-than-expected global economy has an impact on Thai exports but would not derail the overall economic recovery.

Headline inflation is expected to be at 6.3 percent in 2022 before declining to 2.6 percent in 2023 due to falling global oil prices and gradual easing of supply chain bottlenecks. Core inflation is projected to be at 2.6 percent in 2022 and 2.4 percent in 2023, rising more than previously assessed mainly on the back of higher cost pass-through. Wages have increased in some sectors and areas with labor shortages, but there have not been signs of a broad-based wage increase. Furthermore, demand-side inflationary pressures are limited as the Thai economy is still in a recovery stage.

Meanwhile, medium-term inflation expectations remain anchored within the target range. The Committee will continue to closely monitor risks to inflation, especially a potential increase in cost pass-through, should businesses face rising cost pressures from multiple sources simultaneously.

Overall financial system remains resilient. Commercial banks have high levels of capital and loan loss provision. Debt serviceability of households and businesses has improved in line with the economic recovery. However, SMEs in some sectors have yet to fully recover and some low-income households are still sensitive to the rising living costs. The Committee views that financial institutions should continue to press ahead with debt restructuring and deems it important to have targeted measures and sustainable solutions in place for vulnerable groups.

Overall financial conditions remain accommodative. Government bond yields have gradually increased, while overall funding costs remain conducive for business financing. The depreciation of the baht against the US dollar has been rapid and continuous due to the strengthening of the US dollar but is still in line with regional currencies. The Committee will continue to closely monitor developments in the financial and exchange rate markets, especially in the period of heightened volatilities.

Under the monetary policy framework with objectives of maintaining price stability, supporting sustainable and full-potential economic growth, and preserving financial stability, the Committee judges that the Thai economy will continue to recover but with increased inflation risks. The policy rate should be normalized in a gradual and measured manner to the level that is consistent with sustainable growth in the long term. The Committee is ready to adjust the size and timing of policy normalization should the growth and inflation outlook shift from the current assessment.