Thai central bank holds rate, cuts 2016 growth
Thailand's central bank on Wednesday held its key interest rate and cut its 2016 growth forecast, saying economic momentum is slowing as the impact of the government's short-term stimulus measures is fading.
The Bank of Thailand, whose key rate was held at 1.50 percent as expected, revised its 2016 economic growth projection to 3.1 percent from 3.5 percent.
It also cut its 2016 exports forecast to a contraction of 2 percent instead of no expansion. "Overall economic momentum slowed, following dissipation of the effect of the government's tax rebate measure around the end of last year and of the accelerated car purchase prior to the increase in vehicle excise tax this year," the Monetary Policy Committee said in a statement. The MPC has left the rate unchanged since surprise cuts in March and April 2015. The BOT said the current policy rate supports economic recovery and the "policy space should be preserved".
All but two of 28 economists polled by Reuters had predicted no policy change on Wednesday. Two forecast a 25 basis-point cut. Many see no change throughout 2016, as more than a year of declining consumer prices gives policymakers leeway to keep monetary policy easy. Although an army coup in May 2014 ended months of political unrest, Southeast Asia's second-largest economy has yet to regain traction, with exports and domestic demand still weak. The economy grew 2.8 percent last year, up from 0.8 percent in 2014 but its recovery remains fragile.
In a bid to lift activity, the military junta introduced economic measures and stepped up infrastructure projects. It plans more stimulus, including home loans for low-income earners, a tax break and cash handouts to spur spending.
Santitarn Sathirathai, senior economist of Credit Suisse in Singapore, said: "We continue to think that the Bank of Thailand will likely cut rate later this year as the currency strength combined with sluggish growth and low inflation improve the risk reward of easing further." Jack Chambers, senior economist at Moody's Analytics in Sydney, said business and consumer confidence "remain weak and unlikely to improve in the near term." While BOT will be reluctant to ease too much due to high household debt levels, Chambers said he expects a 25 basis point cut by the end of the second quarter.