(Bloomberg) -- Thailand’s central bank will probably raise borrowing costs by another quarter-point on Wednesday, with the decision itself likely to be overshadowed by the rate-setting panel’s commentary on future rate path.

Twenty-two of 24 economists surveyed by Bloomberg expect the Bank of Thailand’s Monetary Policy Committee to lift the benchmark one-day repurchase rate by 25 basis points to 2% — the highest level in eight years. The remaining two see policymakers holding fire after 125 basis-point of increases since August last year.

Although consumer price gains have returned to target, policymakers have more than one reason to stay focused on fighting inflation. The return of tourists by the millions is boosting consumption, keeping Thailand on course to become the only Southeast Asian economy to see faster expansion every year since the downturn in 2020. Also, the nation still has the deepest negative real interest rate in the region at 0.92%.

That makes the local currency — already under pressure due to political concerns — vulnerable to selloffs. The Thai baht has weakened about 2% in the past month, while foreign investors turned net sellers of local bonds and stocks on concerns about possible delay in formation of a new government after the election held on May 14.

Here’s what to watch out for in the MPC statement at 2 p.m. Bangkok, followed by Assistant Governor Piti Disyatat’s briefing 30 minutes later: 

Policy Signal

Market participants will look for signals from the rate-setting panel on when the tightening will end. While economists in a Bloomberg survey earlier this month predicted the hikes to terminate at 2%, the market views are mixed amid lingering risks to the price outlook. 

While domestic inflation returned to the central bank’s 1%-3% target beginning March, a faster-than-expected pace of economic recovery is still keeping the central bank guarded on price pressures. Among risks flagged by Governor Sethaput Suthiwartnarueput include possible higher spending by a new regime that comes to power on populist pledges. 

“We see upside risk to our 2% terminal rate forecast,” said Tim Leelahaphan, a Bangkok-based economist at Standard Chartered Bank Plc. “The central bank may look beyond near-term political uncertainty and try to build up policy space.” 

Economic Outlook

The central bank had in March trimmed its gross domestic product growth forecast to 3.6% this year and 3.8% the next, while penciling in headline inflation at 2.9% and 2.4%, respectively. It expects tourist arrivals to hit 28 million this year and 35 million in 2024, supported by the return of Chinese visitors. 

“Recovery in the tourism sector appears to have legs. A recent election has paved the way for more government spending and another increase in the minimum wage, which will support consumption further,” according to Tamara Mast Henderson, Asean economist at Bloomberg Economics. “But the central bank is wary that a stronger economy could rekindle price pressures.”

--With assistance from Tomoko Sato.

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