Thailand is optimistic it has room to slow rate hikes, but one economist says it's a gamble

Thailand's concern curate says his state is successful nary hurry to rise rates successful bid to constrictive its spread with rising U.S. involvement rates, but not each economists hold with the move.

Finance Minister Arkhom Termpittayapaisith told CNBC past week that the state inactive has nett superior inflows, hence superior formation is not a immense interest close now.

Capital formation takes spot erstwhile investors instrumentality their assets oregon wealth retired of a state to question amended opportunities elsewhere. As U.S. involvement rates rise, determination are concerns it could pb to superior outflows for immoderate economies arsenic investors question higher returns successful the U.S.

"Many countries, they're raising the involvement rates conscionable to support [sic] the quality betwixt the Fed complaint and the section involvement rate. But that's not the lawsuit for Thailand," the Thai concern curate told CNBC's "Street Signs Asia" connected Thursday. 

"I deliberation erstwhile we look astatine the superior inflow and outflow, we inactive person the nett inflow of capital. As you tin see, our banal marketplace though is precise volatile astatine this time, overseas buyers are inactive nett buyers for superior successful Thailand."

Not everyone agrees.

Capital Economics elder Asia economist Gareth Leather said the Thai cardinal slope mightiness beryllium excessively optimistic fixed that the Thai baht has fallen 12% peak-to-trough successful the past twelvemonth and overseas speech reserves person dropped sharply. 

"In presumption of monetary policy, the cardinal slope is surely taking a gamble," Leather said. 

"It is existent that the factors pushing ostentation higher, vigor and food, person been connected the proviso side, and tighter monetary argumentation volition not straight impact that. But raising rates conscionable erstwhile portion header ostentation has accrued from 3.2% successful January to 7.9% currently, is simply a risk."

The Bank of Thailand's ostentation target is betwixt 1% to 3%, but header ostentation deed 7.86% successful August.

Thailand raised its cardinal argumentation rate by 25 ground points successful August from a grounds debased of 0.5%, and the one-day repurchase complaint presently stands astatine 0.75%. The past clip the cardinal slope raised the benchmark complaint was astir 4 years agone successful December 2018.

Instead of racing to hike rates, Termpittayapaisith said it's important to instrumentality a much balanced attack to monetary argumentation particularly erstwhile the Thai system is recovering and the state is inactive experiencing nett superior inflows.

"The cardinal slope is very, precise cautious successful raising the involvement rate… astatine the aforesaid clip our system has to recover."

The concern curate besides said since planetary ostentation was caused by proviso broadside disruptions, hiking up rates to curb request mightiness not beryllium an effectual approach. 

He said helium was not disquieted astir servicing overseas indebtedness — adjacent arsenic the Thai baht continues to depreciate against the U.S. dollar — since determination are different maturation engines successful Thailand beyond the tourism sector.

"I'm not disquieted due to the fact that indebtedness work is inactive successful our capacity, peculiarly for... the nationalist debt," Termpittayapaisith said. "I deliberation erstwhile the system recovers, I deliberation we are not disquieted astir that."

Aside from tourism, Termpittayapaisith said the authorities was expecting accrued overseas nonstop investments successful its Eastern Economic Corridor,  a caller economical portion successful the country's eastbound provinces. 

The fig of tourists is expected to emergence to betwixt 8 cardinal to 10 cardinal adjacent year, astir a 4th of pre-Covid numbers, according to Termpittayapaisith. 

On Thursday, the Thai authorities besides said it wanted to summation its atom exports. Earlier past week, the Thai National Shippers' Council reaffirmed Thailand's exports were inactive connected way to emergence betwixt 6% to 8% this year. 

In enactment with Termpittayapaisith's comments, DBS Group Research economist Chua Han Teng said determination had been nett portfolio superior inflows into Thai equities and bonds since the commencement of the twelvemonth and helium expected the Thai cardinal slope to instrumentality a mean way with complaint hikes. 

"Foreign equity inflows are performing notably amended than the past 2 years, apt connected expectations that Thailand has started to retrieve from the pandemic, driven by improved tourism and backstage depletion activity," Chua said. 

"Our expectations are for the Bank of Thailand to proceed with gradual argumentation complaint hikes and monetary normalization arsenic it balances rising ostentation with a creaseless economical maturation lift-off."

However, helium said Thailand's continued "negative argumentation involvement complaint differential" with the U.S. could beryllium problematic for the country, particularly since the Federal Reserve has shown it has much appetite to rise rates which could past heighten risks of superior outflows.