Thai central bank to deliver third straight 25bps hike on Nov. 30

The widely-expected move, which would take the benchmark rate to only 1.25%, constitutes one of the tamest central bank tightening campaigns in the world, underscoring ongoing worries about growth in Southeast Asia's second-largest economy.

Thailand's economy has lagged its regional peers and was not expected to return to pre-pandemic levels until early next year as its vital tourism sector, which makes up about 12% of output, has only just started to rebound.

With the slowest pace of inflation in six months in October, helped by government measures to ease the cost of living, BOT Governor Sethaput Suthiwartnarueput has said it is not necessary to aggressively increase rates to manage inflation like in other countries.

All but two of the 19 economists in the Reuters Nov. 21-25 poll expect the BOT to raise its benchmark one-day repurchase rate by 25 basis points to 1.25% at its Wednesday meeting. The remaining two predict rates will remain unchanged.

"We expect a relatively more modest recovery of the Thai economy and hence a less aggressive BOT compared to the rest of major and regional central banks on the back of easing inflation which may result in rather persistent weakness in the Thai baht," said Enrico Tanuwidjaja, an economist at UOB.

"Negative real interest rates will continue to favour the Thai economic recovery as it diverges away from an ultra-tight monetary policy elsewhere in the world, most notably in the U.S. and Europe."

The U.S. Federal Reserve has increased rates by 375 basis points so far in this cycle, with 75 basis point moves at the last four meetings and another 50 due in December.

Despite the wide interest rate gap, the baht has been one of the top performers in emerging market currencies, depreciating only about 7% so far this year.

"External pressure on the BOT to be more assertive with rate hikes has also eased after the recent retreat in the dollar," said Krystal Tan, economist at ANZ.

"Capital inflows have returned to its domestic bond and equity markets in the month-to-date, and the decline in foreign exchange reserves has started to reverse."

A weak currency is generally considered positive for the tourism-dependent Thailand economy.

In the year before the pandemic, 40 million tourists visited the country, which has a population of 70 million. The government wants tourism next year to reach 80% of its pre-pandemic levels, even as global growth is likely to slow.

"We expect Thai international tourism arrivals to be resilient to the global economic slowdown, with arrivals showing low sensitivity to global economic activity fluctuations historically," said Chua Han Teng, economist at DBS.