Thailand to disrupt speculative buying with key rate hike

First raise in seven years

Wat Arun temple in Bangkok, Thailand. Sahachatz/Shutterstock

In a bid to quell speculative property buying, Thailand’s central bank raised Wednesday the overnight repo rate to 1.75 percent, up 0.25 percentage points, the Nikkei Asian Review reported.

It marks the first time the Bank of Thailand has increased its key interest rate since August 2011. It had cut the overnight repo rate to 1.50 percent in April 2015.

The monetary policy board believes that low key rates have accommodated yield-seeking behavior in the real estate market, leaving the economy vulnerable to financial shocks.

The rate change follows the bank’s announcement it would tighten mortgage underwriting standards in January 2019. Mortgages for homes valued more than THB10 million (USD300,000) will be capped with an 80 percent loan-to-value (LTV) limit in a measure hoped to curb speculators.

Raising policy rates when the economy is solid builds up space for monetary easing ahead of politically uncertain times, according to Yoichiro Yamaguchi, chief economist at Sumitomo Mitsui Banking Corporation.

“The upcoming general election is a big uncertainty to Thailand’s economy,” Yamaguchi told the Review. “The central bank wanted to secure room for monetary easing before the election, so that the bank has a measure [in place] to support the Thai economy if anything negative happens in the election process.”

The monetary policy committee voted four to three to maintain the policy rate in November.