The chairman of the Federation of Thai Industry (FTI), Supant Mongkolsuthree, made that point and, in doing so, appears in alignment with the thinking in government circles on the first such rate increase in seven years.

Kobsak Pootrakool, the Minister to the Prime Minister’s Office, said the rate rise decided upon by the central bank’s Monetary Policy Committee (MPC) fell within its authority.

However, he said the action could hold back the country’s economic growth, coinciding with the preparations for a national election and with the doubts of the direction of the global economy. This is the main factor that the MPC and the BOT have to concern themselves with when making a decision to increase interest rates, Kobsak said.

Finance Minister Apisak Tantivorawarong said that, with the MPC acting to raise the key interest rate, the Finance Ministry has to find ways to support the economy. The higher cost of funding will directly impact economic growth and also the investment plans of the private sector.

“I do not agree with the reason to increase the interest rate made by MPC, but I have to find others way to reduce the effect from this policy, which will impact the country’s economy growth and also impact people’s purchasing power in relation to consumption,” Apisak said.

The MPC raised the policy rate by 25 basis points to 1.75 per cent in its meeting yesterday in a decision aimed at curbing risks to financial stability and making a start on building up policy space.

Five of the seven MPC members voted for the rise, with the other two wanting to keep the rate on hold.

As the prolonged low policy rate has supported the country’s economic expansion and kept inflation within its target framework, most members viewed that it was less necessary to depend on accommodative monetary policy, said Titanun Mallikamas, secretary to the MPC.

Most of the members viewed that the policy rate at 1.75 per cent will remain conducive to growth, while the other two members saw higher risks and uncertainties on the external front that could affect Thai economic growth over the coming period. They pointed to the need to assess certain impacts and the sustainability of the domestic growth momentum for some time.

The MPC added the phrasing “the need for accommodative monetary policy as in the previous period had reduced” in its statement, signalling the need for businesses and consumers to prepare for an upward trend in interest rates.

The Thai situation is similar to that of the United States in 2015-16 when the Federal Reserve put out signals over a long period before raising the Fed Funds rate after a prolonged period of low interest rates 2008. The start of the US rate rises had been expected and investors and the broader business sector had prepared themselves, Bank of Ayudhya’s Global Markets Group said.

Kasikorn Research Centre expects no significant impact on Thai expansion next year amid high liquidity in the Thai money market, while seeing that the MPC will continue its accommodative policy at least for the first half of next year.

The MPC is expected to assess the Thai economy in the coming periods before a possible further rate rise in the latter half of next year, the research house said.

Phacharaphot Nuntramas, senior director of Krungthai Bank’s global business development and strategy unit, expects the MPC to raise the policy rate to 2 per cent in the latter half of next year as the Thai economy may not overheat with the estimated low inflation.

Titanun said the economy has continued to gain traction driven by domestic demand, while external demand has slowed.

The economy would be subject to increased downside risks mainly on the external front, highlighted by the trade protection by the US and China, he said. This year, the estimate for export growth has been cut to 3.7 per cent from an earlier forecast of 5.5 per cent.