Thailand’s central bank is poised to deliver another rate increase in line with an unwavering post-pandemic tightening strategy despite rapid disinflation and political gridlock.

Bank of Thailand will raise the benchmark one-day repurchase rate by 25 basis points to 2.25% on Wednesday, the highest level since January 2014, according to 19 of 21 economists surveyed by Bloomberg. The rest forecast a hold for the first time in a year.

Thailand’s policymakers continue to telegraph hawkish signals even after inflation cooled faster than most regional peers that have already paused tightening, or in the case of Vietnam already pivoted to rate cuts. Authorities are banking on tourism revival and firmer economic rebound to counter risks from delayed government formation.

Governor Sethaput Suthiwartnarueput last month said there’s no need to abruptly adjust the BOT’s “gradual and measured” policy normalization approach, even after overall inflation approached zero in June from 7.9% in August last year.

“Core inflation pressures, while easing, are still higher than levels seen in the past,” said Lavanya Venkateswaran, a senior economist at Oversea-Chinese Banking Corp. in Singapore. “The near-term growth outlook remains supported by strong tourism inflows,” she said, expecting the BOT to pause at 2.25%.

Here’s what to watch out for in the decision expected at 2 p.m. local time:

Growing Risks

“Given the growing downside risks to growth and subdued inflation, we think this hike will likely be the last move in this cycle,” said Burin Adulwattana, chief economist at Kasikorn Research Center in Bangkok.

More than two months since a pro-democracy coalition won the most seats at the May 14 election, its attempts to form a government have been scuppered by conservative parties and military-appointed senators. That could delay the approval of the budget, adding to other economic risks such as weaker demand for exports and fewer-than-expected visitors from China.

Market participants will look to see if the central bank’s assessment has changed from May — when it forecast a steady pace of economic expansion at 3.6% this year and 3.8% next year, supported by tourism and private consumption. At that time, policymakers hadn’t expressed any concern about the political situation. After all, government formation in Thailand typically takes more than a month.

But with the exercise taking more time than it did in 2019, industry groups and the state planning agency have warned that an extended wait for a new government will hurt sentiment, delay investments as well as trade agreements with other countries.

The political uncertainty has weighed on Thailand’s stocks with foreign investors pulling out about $3.5 billion this year. The baht, however, has recovered from its losses after the mid-May election, and was up more than 3% in July, the best performer in the region last month.

Policy Signal

The central bank’s statement at this meeting will be closely watched after Assistant Governor Piti Disyatat’s remarks weeks ago that policy normalization is already “at the advanced stage” and should end this year.

“BOT has already reached the neutral rate, with further tightening providing a meaningful drag on growth,” said HSBC Holdings Plc economist Aris Dacanay, citing the bank’s estimates. “We expect BOT to act cautiously in terms of moving beyond the 2.25% policy rate.”

--With assistance from Tomoko Sato, Nurin Sofia and Catherine Ngai.