Bank of Thailand predicted to raise policy rate to 2% this month

[snoop1130]

Image courtesy of Bangkok Post

 

Economists anticipate that the Bank of Thailand will raise its policy rate to a terminal level of 2% this month, following their estimation that the Federal Reserve’s funds rate has reached its peak. The research centre of TMBThanachart Bank (ttb) suggests that the central bank’s Monetary Policy Committee (MPC) will increase the policy benchmark rate by 0.25 percentage points during the meeting set for May 31, raising it from the current 1.75%.

 

After this rate hike, ttb analytics predicts the central bank will maintain the rate unchanged for the rest of the year, focusing on financial stability amidst global uncertainties and high inflation rates. The country’s inflation rate has remained steady but is still at a high level which may experience a slight increase during the second half of the year due to recovering tourism.

 

For this year, ttb analytics forecasts core inflation at 101.5%, and headline inflation at 2.3%. Recently, the US Federal Reserve increased its policy rate by a quarter-point, significantly affecting capital and money markets globally. This hike in the policy rate is expected to have an impact on the Thai baht’s movement against the US dollar. The research centre believes that the baht will appreciate to 33.50 to the US dollar by mid-year.

 

Kasikorn Research Center (K-Research) also predicts a 0.25 percentage point increase in Thailand’s benchmark rate this month. Following this, the central bank is expected to observe the global economy and the heightened risks in the US financial industry before deciding on further policy rate movements. K-Research stated that the 0.25 percentage point increase in the Fed rate was expected.

 

Full Story: https://thethaiger.com/news/business/bank-of-thailand-predicted-to-raise-policy-rate-to-2-this-month

 

-- © Copyright Thaiger 2023-05-08

 

- Cigna offers a range of visa-compliant plans that meet the minimum requirement of medical treatment, including COVID-19, up to THB 3m. For more information on all expat health insurance plans click here.

 

The most versatile and flexible rental investment and holiday home solution in Thailand - click for more information.

[spidermike007]

How are the banks able to get away with charging so much interest on loans, when the benchmark rate is so low? Seems felonious. 

[mrfill]

2 hours ago, spidermike007 said:

How are the banks able to get away with charging so much interest on loans, when the benchmark rate is so low? Seems felonious. 

My guess is that there is no alternative low interest loan company so the banks can charge whatever they can get away with.

[nigelforbes]

5 hours ago, spidermike007 said:

How are the banks able to get away with charging so much interest on loans, when the benchmark rate is so low? Seems felonious. 

 

3 hours ago, mrfill said:

My guess is that there is no alternative low interest loan company so the banks can charge whatever they can get away with.

Lending rates in Thailand vary based on risk, just as they do in almost every country. The lowest risk and cheapest interest rate is when a bank borrows from the Central Bank (BOT), the second cheapest is bank to bank lending interest rates. Commercial lending rates are third and retail or consumer lending, the most expensive, is fourth.

 

BOT (or the MPC) sets the policy or headline rate, that is the lowest rate at which the Central Bank will lend to other banks, in other countries this is known as the Prime or Base Rate.

 

Bank to bank lending rates, typically BIBOR (Bangkok Inter Bank Overnight Rate) is the next lowest, it uses the policy rate as a base but adds a premia based on the borrowers risk profile, amount borrowed and duration of the loan.

 

Higher up the rate ladder is the MLR. MLR is the Minimum Lending Rate, this is the lowest rate at which a bank will lend to its most credit worthy and lowest risk commercial customers and is typically about 5% above the policy rate.

 

Finally, at the top of the ladder is the Minimum Retail Rate (MRR) which is the lowest interest rate charged by retail banks to their most credit worthy retail customer. Typically, MLR will be about 6% above the policy rate.

 

In every instance, except the first example above, customers who are a higher credit risk will see their interest rate increase by an amount, proportionate to the lenders increased risk. Typically, any additional interest that is added to MRR will be capped at around 12%. (see linked example below). Maximum MLR, MMR and other caps are set by BOT as a percentage. Banks cannot exceed those caps but they are not required to adopt them, when the headline rate is increased.

 

For example, a poor risk retail customer my be offered MRR plus 12%. This comprises the policy rate, plus the MRR premia, plus the additional risk premia. If the BOT policy rate is 2%, and the MRR premia is 6%, and the customers risk profile is such, the borrower in that example will be charged 18% per annum and may increase as the policy rate increases. Other lenders such as finance houses etc, may appear to offer lower headline lending rates but when all their charges and terms are added into the mix, they are rarely, if ever, cheaper. Loans from Finance Companies are often easier to obtain but beware the small print. Note: all banks, finance house and lenders must be licensed by BOT, otherwise they are illegal.

 

https://krungthai.com/Download/rateFee/RateFeeDownload_4672Table_2_Loan_Interest_Rate_EN_1.2.66.pdf

 

[GMReloaded]

As long as the THB keeps devaluating relative to the euro, they can do whatever they want.

[spidermike007]

11 hours ago, nigelforbes said:

 

Lending rates in Thailand vary based on risk, just as they do in almost every country. The lowest risk and cheapest interest rate is when a bank borrows from the Central Bank (BOT), the second cheapest is bank to bank lending interest rates. Commercial lending rates are third and retail or consumer lending, the most expensive, is fourth.

 

BOT (or the MPC) sets the policy or headline rate, that is the lowest rate at which the Central Bank will lend to other banks, in other countries this is known as the Prime or Base Rate.

 

Bank to bank lending rates, typically BIBOR (Bangkok Inter Bank Overnight Rate) is the next lowest, it uses the policy rate as a base but adds a premia based on the borrowers risk profile, amount borrowed and duration of the loan.

 

Higher up the rate ladder is the MLR. MLR is the Minimum Lending Rate, this is the lowest rate at which a bank will lend to its most credit worthy and lowest risk commercial customers and is typically about 5% above the policy rate.

 

Finally, at the top of the ladder is the Minimum Retail Rate (MRR) which is the lowest interest rate charged by retail banks to their most credit worthy retail customer. Typically, MLR will be about 6% above the policy rate.

 

In every instance, except the first example above, customers who are a higher credit risk will see their interest rate increase by an amount, proportionate to the lenders increased risk. Typically, any additional interest that is added to MRR will be capped at around 12%. (see linked example below). Maximum MLR, MMR and other caps are set by BOT as a percentage. Banks cannot exceed those caps but they are not required to adopt them, when the headline rate is increased.

 

For example, a poor risk retail customer my be offered MRR plus 12%. This comprises the policy rate, plus the MRR premia, plus the additional risk premia. If the BOT policy rate is 2%, and the MRR premia is 6%, and the customers risk profile is such, the borrower in that example will be charged 18% per annum and may increase as the policy rate increases. Other lenders such as finance houses etc, may appear to offer lower headline lending rates but when all their charges and terms are added into the mix, they are rarely, if ever, cheaper. Loans from Finance Companies are often easier to obtain but beware the small print. Note: all banks, finance house and lenders must be licensed by BOT, otherwise they are illegal.

 

https://krungthai.com/Download/rateFee/RateFeeDownload_4672Table_2_Loan_Interest_Rate_EN_1.2.66.pdf

 

Thanks for the education. In the US for example, the MRR is about a 2% spread. Here is it about 5-6%?

 

That is a scam and an abomination. And that should be illegal. 

[nigelforbes]

8 hours ago, spidermike007 said:

Thanks for the education. In the US for example, the MRR is about a 2% spread. Here is it about 5-6%?

 

That is a scam and an abomination. And that should be illegal. 

Retail lending is not as profitable as commercial lending. Even though MLR is always lower than MRR. Banks only engage with the retail sector because they need retail deposits, if banks had a choice they wouldn’t engage. Retail lending is higher risk, less profitable and more labour intensive, hence the higher rates of interest. MRR at Thai banks is currently in the range of 6.8% to 7.2%, this rises and falls as the headline rate changes and as the interest rate on savings changes. Banks are not required to pass through the MLR whenever the headline rate increases, so far this year. 68% have.

 

MLR and MRR defend the banks profitability margin and appears unscrupulous at first. But the population is far higher risk. It is lower income by comparison to the West, has fewer safety nets and is more prone to income volatility, hence the need for a higher MRR.

[whiteman]

One wonders why you would put your money in a Thai bank at 2 % when overseas most banks give you 5.5%

[whiteman]

Featured term deposit rates

Special interest rates are available in Internet Banking and the BNZ app, for selected terms. You’ll need to have an individual or joint account with us.

5.35%p.a.

180 days¹$2,000 - $5 million

5.40%p.a.

270 days ¹$2,000 - $5 million

5.70%p.a.

1 year¹$2,000 - $5 million

See all rates and terms

 

Open a term deposit

 

[h90]

On 5/9/2023 at 5:05 AM, spidermike007 said:

How are the banks able to get away with charging so much interest on loans, when the benchmark rate is so low? Seems felonious. 

by not having foreign competition

[nigelforbes]

7 hours ago, h90 said:

by not having foreign competition

Every business in Thailand must be at least 51% Thai owned, that doesn't prevent foriegn brands from competing here, the list of them is lengthy. Foriegn banks can obtain a retail banking license, as long as they have Thai majority share ownership, CIMB, UOB, Standard Chartered, HSBC (previously), BOC, Citibnak etc., all hold/held retail banking licenses so they can be obtained.

 

This year, BOT has anounced the issuance of five new retail banking licenses to foriegn banks, see the following link.

 

https://www.nationthailand.com/business/30209345

 

 

[h90]

16 hours ago, nigelforbes said:

Every business in Thailand must be at least 51% Thai owned, that doesn't prevent foriegn brands from competing here, the list of them is lengthy. Foriegn banks can obtain a retail banking license, as long as they have Thai majority share ownership, CIMB, UOB, Standard Chartered, HSBC (previously), BOC, Citibnak etc., all hold/held retail banking licenses so they can be obtained.

 

This year, BOT has anounced the issuance of five new retail banking licenses to foriegn banks, see the following link.

 

https://www.nationthailand.com/business/30209345

 

 

I don't know how it is now, but before they couldn't have many branches, they were very limited......And 51% Thai ownership is also limiting....