MPC keeps rate steady, frets over bad SME loans
The Bank of Thailand’s Monetary Policy Committee (MPC) kept the policy rate unchanged yesterday at 1.5% as widely expected while voicing concerns over the debt-servicing ability of small and mediumsized enterprises (SMEs).
Risks that warrant close monitoring include the debt repayment ability and competitiveness of SMEs, said Jaturong Jantarangs, assistant governor of the monetary policy group and the MPC’s secretary.
An improved economic outlook supported by strong growth in merchandise exports has failed to benefit some parts of the SME sector because of their poor competitiveness, which is evident from the continued high level of their bad loans, he said.
“Normally we expect bad loans to lag from an economic recovery for at least two quarters, but for the SME sector we will have to wait and see how long it takes,” Mr Jaturong said.
Bad SME loans climbed to 4.48% of loans outstanding at the end of March, up from 4.35% in the fourth quarter of 2016, according to central bank data.
“Some SMEs are losing their competitive edge, as they haven’t changed their business model and they could be left behind,” Mr Jaturong said, adding that stronger competition in many sectors is pressuring these firms.
“Overall financing conditions remained accommodative and conducive to economic growth,” he said. “Hence, the committee decided to keep the policy rate unchanged at this meeting.”
Private consumption grew by stronger than expected in the first quarter, supported by improved farm income and stronger consumer confidence.
Demand-pull inflationary pressure remained low, while inflation was softer than expected and has fallen below the lower band of the target in some periods.
“The economic recovery has to continue for a longer period, and stronger consumer confidence is required to make demandpull inflationary pressure pick up,” Mr Jaturong said.
He said the ability of producers to pass on costs to consumers also weakened in the recent period because of excessive capacity in many sectors.
“External risks still require close monitoring by the MPC, as geopolitical risks have increased recently while uncertainties remain regarding US foreign trade and economic policies,” Mr Jaturong said.
The recovery in merchandise exports and baht movement is in line with other currencies in the region, partly alleviating fears that a firmer baht might halt an economic rebound, he said.
Don Nakornthab, senior director in the macroeconomic and monetary policy department at the central bank, expects the agency’s measure to cut issuance of its short-dated bonds to remain in the coming period.
The central bank announced earlier that it was cutting 80 billion baht worth of shortterm bonds issued in both April and May to curb baht speculation.