Sources: M3 from Bank of Thailand website and nominal GDP from IMF, as at July 2021

The medium-term relationship between money and nominal GDP growth in Thailand, 1981-2022

Five-year moving averages of annual % changes, with 1983 being the start of the first five-year period

Comment on monetary trends in Thailand

Thailand opened up to international trade in the 19th century. Until recently, its main export was rice but now the industrial sector is nearly five times bigger than the agricultural. The Thai economy is very export-orientated and it has grown to become the second largest in south east Asia after Indonesia. The country was badly affected by the financial crisis which hit a number of Asian nations in 1997 and suffered from a recession. Since then, however, it has returned to growth without suffering from anything like as high a level of inflation as other developing economies. After a short-lived peak in the aftermath of the 1997 crisis, growth in consumer prices has stayed below 10% ever since. Indeed, the country suffered a bout of deflation during the Great Recession of 2007-9 and again in 2020 due to the coronavirus pandemic.

The Central Bank of Thailand was established in 1942. It is entirely state-owned. Its roles includes the formulation of monetary policy and the promotion of monetary stability. Since 2000, the bank has operated a fairly flexible - and successful - inflation targeting strategy and the current target is for inflation to remain within a band of 1% and 3%. It also acts as lender of last resort for the country's commercial banking sector.

In May 2020, the Bank of Thailand responded to the coronavirus pandemic by cutting interest rates to a record low of 0.5%. The economy contracted by 6.1% during the year, with the important tourist sector being particularly hard hit. Until April 2021, there had been relatively few cases on the virus in Thailand itself, but in common with a number of other Asian countries, the situation then deteriorated.

Interest rates had been cut back to 0.5% in 2020 to counteract the effects of the pandemic , but once it abated, inflation, which had fallen below zero, began to rise, peaking at 7.9% in the year to June 2022. The central bank responded by tightening monetary policy and has continued to raise interest rates through to September 2023 even though the inflation rate had fallen below 1% in April. Growth in the quantity of money, broadly defined, turned negative in April, which suggests that monetary policy may well have become too tight and a recession will ensue.