BANGKOK, June 28 : Thailand's economy is expected to grow about 3.5% this year, driven by stronger tourism and exports, the finance minister said on Tuesday.

The tourism ministry now predicts 9.5 million foreign visitors this year, Arkhom Termpittayapaisith told reporters.

The government also plans additional measures to help reduce costs of living, he added.

Meanwhile, on Monday (June 27), Thai central bank officials announced that a tightening of Thai monetary policy will be conducted so it does not disrupt the recovery of South-East Asia's second-largest economy, reinforcing market expectations of interest rate hikes later this year.

Thailand's economy will continue growing this year and next, driven by domestic demand and tourism, and could beat forecasts despite a risk that inflation will be higher than expected, Bank of Thailand (BOT) officials told an analysts' meeting.

The BOT will try to prevent the economy from overheating, which would cause demand-driven inflation, by gradually shifting from the current very accommodative policy, Assistant Governor Piti Disyatat told the meeting.

The BOT's task was to help the economy take off smoothly, he said.

"It's a challenge for monetary policy to release the accelerator pedal appropriately and timely so that the recovery has good momentum," Piti said, referring to the current record low-interest rate of 0.50%.

The speed of policy tightening would be determined by data and be in line with associated risks, he said, adding the BOT had no intention of springing surprises on markets.

The BOT has no plans to hold a special policy meeting as the remaining three scheduled meetings for this year slated for August, September and November were still appropriate, he said.

The central bank will next review policy on Aug. 10, when most economists expect the first rate hike since December 2018.

At the June 8 policy review, the BOT's committee voted four to three to hold the key rate. The three dissenters favoured a quarter-point rise.

The BOT sees economic growth of 3.3% this year and 4.2% next year, while headline inflation is forecast at 6.2% in 2022 and 2.5% in 2023.

Despite inflation breaching the BOT's target range of 1% to 3%, the BOT saw no reason to adjust the target, which remained appropriate for the economy in the medium term, Piti said.

Senior director Sakkapop Panyanukul said inflation should peak in the third quarter before gradually returning to target in the middle of 2023.

While noting a weak baht was affecting import costs, Piti said the currency might strengthen in the medium term as the dollar would not keep on rising once U.S. monetary tightening kept inflation under control.

Baht weakness was in line with regional currencies and the BOT would closely monitor and manage excessive volatility, said senior director Surach Tanboon.

Policy tightening would also reduce volatility in exchange rates and capital movements, he added.

 - Reuters