(Bloomberg) -- Thailand’s central bank delivered its eighth straight quarter-point increase to borrowing costs since August 2022, and hinted that interest rates need not go any higher as inflation remains low and economic momentum builds.

The Bank of Thailand’s Monetary Policy Committee voted in unison to raise the one-day repurchase rate by a quarter-point to 2.50% on Wednesday. Ten of 21 economists in a Bloomberg survey had predicted the rate returning to this level, which was last seen in October 2013. The rest had expected no change.

“The Committee deems the current policy interest rate to be appropriate for supporting long-term sustainable growth,” the BOT said in a statement, signaling a neutral stance. “Going forward, the Committee will take into account growth and inflation outlook, including upside risks from government economic policies.”

With the government set to unleash a string of stimulus steps to spur economic growth, Wednesday’s decision marked a preemptive action by monetary policymakers to check inflationary pressures. Another signal to the end of BOT’s tightening cycle came from the lack of reference to future hikes, unlike in the Aug. 2 statement when the authority said it will consider “further increases.”

Prime Minister Srettha Thavisin’s cabinet approved a raft of measures this month ranging from energy subsidy to cash handouts to drive domestic demand.

The BOT expects multiplier effect of around 0.3-0.6 times from the cash handout program, Assistant Governor Piti Disyatat told a briefing after the rate decision. “The rate hike will help anchor inflation expectations,” he said.

While the central bank cut gross domestic product growth forecast for the current year to 2.8% from 3.6% seen previously, it expects the economy to expand at a faster clip of 4.4% next year. That view factors in the government’s stimulus steps and wage hike, he said.

Similarly, the BOT lowered its projection for headline inflation in 2023 to an average of 1.6% this year while raising estimates for 2024 to 2.6%. Both are well within the BOT’s 1%-3% target.

The baht pared losses to trade 0.4% lower against the dollar after the the closely-called decision. The currency has weakened more than 4% this month, making it the worst-performer among 12 Asian currencies tracked by Bloomberg. 

The nation’s sovereign bonds have also underperformed, amid concerns on additional government borrowing to finance the new government’s stimulus measures.

What Bloomberg Economics Says...

It indicated that the policy rate is now at the neutral level, where it prefers it to be. Yet, it still sees upside risks to the inflation outlook and raised its growth forecast for next year substantially. It’s a close call, but we wouldn’t rule out another rate hike or two this cycle — though a hold appears more likely at the next meeting in November.

—Tamara Mast Henderson, Asean economist

For the full note, click here

The centerpiece of Srettha’s economic stimulus is a 560-billion baht ($15.3 billion) spending to provide 10,000 baht each to an estimated 55 million individuals. The money will be distributed through a digital wallet and must be used within six months, with the program expected to be rolled out in the first quarter of 2024.

Along with fresh energy subsidies, three-year debt suspension for farmers, visa waivers for Chinese tourists and plans to raise the minimum wage, the new government sees economic growth hitting at least 5% annually starting next year. The government claimed these steps are necessary to cope with challenges ranging from slowing global demand, geopolitical tensions, high household debt and El Nino weather.

--With assistance from Tomoko Sato, Pathom Sangwongwanich and Cecilia Yap.

(Updates with details from the third paragraph.)

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