MPC policy rate ‘to stay unchanged’

Analysts: Confidence rising over recovery

The Bank of Thailand’s Monetary Policy Committee (MPC) is likely to keep its policy interest rate unchanged on Wednesday, say economists.

The forecast is based on improved private-sector confidence following the government’s stimulus measures.

Despite previous expectations the rate-setting panel could make another 25-basis-point cut by year-end to shore up the economic recovery momentum, it is now believed the MPC will probably hold its 1.5% benchmark interest rate steady until the end of next year, said Nalin Chutchotitham, HSBC’s Thailand economist.

“According to the latest economic data, further improvements have been seen in private-sector spending and confidence levels, which is likely to encourage the Bank of Thailand to maintain its cautious stance on the back of high household [debt] leverage,” she said.

“More importantly, the new round of fiscal stimulus measures and the government’s newly approved action plans for infrastructure investment in 2016 provide more confidence the economic recovery will continue, helped by domestic demand.”

Private Consumption Indicators expanded by 0.7% month-on-month on a seasonally adjusted basis in October, up from September’s 0.5%, according to central bank data.

Private Investment Indicators grew by 1% month-on-month on a seasonally adjusted basis last month, up from an expansion of 0.4% in October.

The pace of growth for private consumption is projected to remain weak due to tepid wage growth and swelling household debt, but low energy prices and subdued inflation will continue to support a pickup in consumption, Ms Nalin said.

The seven-member MPC will reconvene for this year’s final meeting on Wednesday. It has been holding its current benchmark interest rate after successive cuts in March and April amid the fragile global economic recovery and volatility in financial markets.

Ms Nalin said HSBC expected the MPC would hold its 1.5% policy interest rate throughout 2016, given weak economic conditions and limited price pressures, while the committee has also reiterated the “monetary policy stance should continue to be sufficiently and continually accommodative”.

The committee is expected to preserve its limited monetary policy space in case of unexpected events occurring such as renewed domestic political unrest, she said. Recent MPC minutes showed further monetary easing was thought to be likely to have only a limited effect on Thailand’s economic recovery and could incur risks to financial stability.

“This suggests the Bank of Thailand is feeling ‘fatigue’ from ‘pushing on a string’, having lowered the policy rate to 1.5% now from 3.5% in 2011 without engendering a healthy boost to economic growth,” she said.

Sarun Sunansathaporn, an economist in Bank of Ayudhya’s research department, said effects on economic activity anticipated from the stimulus measures would be more tangible in the final two months of 2015.

“Recent economic developments reinforce our view the MPC will keep its policy rate on hold on Dec 16 and throughout the first half of 2016,” he said.