Interest rate bucks trend

Thailand is becoming an oasis of monetary policy stability as other emerging markets scramble to raise interest rates.

The country’s Finance Ministry anticipates that borrowing costs will be left at 1.5% this year, said Kulaya Tantitemit, a spokeswoman and inspector-general at the ministry. While an increase is possible in 2019, it won’t be steep, she said.

“It wouldn’t be aggressive,” Ms Kulaya said, referring to a potential tightening next year. “We still have high liquidity in Thailand.”

A wave of monetary tightening has swept across emerging markets as officials try to stem an investor exodus amid a strengthening US dollar and rising treasury yields.

Thailand, in contrast, has seen its currency appreciate in 2018 and received some of the heaviest net bond inflows in Asia this month. Fitch Ratings reaffirmed the country’s BBB+ investment-grade credit rating yesterday.

Thailand’s resilience can be traced to strong buffers: more than $200 billion (6.4 trillion baht) in foreign reserves and a current-account surplus that few peers can match. That gives policymakers breathing room, with the central bank last month saying it doesn’t feel pressure to join global tightening.

Bank of Thailand governor Veerathai Santiprabhob said on Tuesday that the nation has to keep an eye on global rates, including in the US, but that a strong external position provides a policy buffer.

Thailand’s economy is expanding on exports and tourism, and the Finance Ministry is set to revise up its growth outlook to 4.5% for 2018 from 4.2%, Ms Kulaya said. The pace next year should be about the same as the pending revision.

“Economic growth is healthy,” Ms Kulaya said. “Our challenge is people don’t feel it. People in rural areas, in the agricultural sector, don’t see the economy getting better. Our job is: how will we bring money down to other sectors?”

One challenge for the economy could stem from general elections expected in February next year, in a country with a history of elections followed by coups. The current stretch of military rule is one of the longest since the 1970s.