Holding steady
The Bank of Thailand’s Monetary Policy Committee holds the policy rate steady.
The Bank of Thailand’s Monetary Policy Committee (MPC) held the policy interest rate steady as expected yesterday, but voiced concerns over heightening internal downside risks that could derail private consumption and investment.
The seven-member panel stood pat on its 1.5% benchmark interest rate, citing Thailand’s gradual economic recovery founded on public expenditures and tourism expansion as the basis for its inaction.
Preserving the policy space and close monitoring of financial stability risks derived from aggressive investors were other reasons, said Jaturong Jantarangs, assistant governor of the monetary policy group.
The MPC maintained its growth forecast but sees greater downside risks on the domestic front, he said.
“Private investment remains low with expansion in only some business sectors while private consumption has slowed, partly from the drought taking a toll on rural income,” said Mr Jaturong. “Moving the interest rate alone would not spur private consumption and private investment because this depends on future economic growth.”
He said the current rate is not an obstacle for investment and consumption. The MPC has held the benchmark interest rate steady following two successive rate cuts in March and April last year.
The central bank forecasts GDP growth at 3.1% this year, with exports contracting by 2%.
Private investment has taken time to materialise because it is a structural issue and economic growth has to be clear to encourage investing, said Mr Jaturong.
He said the committee has not assessed the drought’s impact in numerical terms, but its effects have taken a toll on private consumption and investment.
The MPC still predicts drought conditions will improve between May and June, helping farm income, but private consumption is weak because of household debt, said Mr Jaturong.
Headline inflation is projected to rise in the second quarter partly because of the base effect from oil prices, but moderate core inflation reflects how domestic demand is recovering slowly, he said.
The baht has gained marginally against the greenback, but the nominal effective exchange rate indicates its value has weakened compared with Thailand’s trading partners, said Mr Jaturong. The MPC is more concerned with recent baht appreciation and has sufficient policy tools to manage foreign exchange rate, he said.
The MPC may want to retain flexibility to react to economic data in the future, said Sarun Sunansathaporn, an economist at the Bank of Ayudhya. Headline inflation is trending upward, new stimulus measures and surprise lending rate cuts by commercial banks could support private spending going forward, he said.