MPC seen holding key rate despite slow growth, strong baht

Thailand’s central bank is expected to keep its benchmark policy rate steady on Wednesday for a fifth straight meeting, a Reuters poll showed, despite sagging growth, a strong baht and easing moves by other Asian central banks.

In the survey, 14 of 15 economists predicted the Bank of Thailand’s Monetary Policy Committee (MPC) will keep its one-day repurchase rate at 1.75% — half a point above the record low. The other forecast a quarter-point cut.

Since a rate hike in December — the first since 2011 — the MPC has left it unchanged, saying policy is still accommodative.

While slower growth, below-target inflation and the baht’s strength support a rate cut, policymakers have voiced concern about financial stability risks and high household debt.

Central bank governor Veerathai Santiprabhob said rates are already low and cutting would not help much.

Analysts say the bank may wait for the government to boost growth while it uses more tools to curb baht strength if measures from July fail to do so.

The central bank has downplayed rate cut expectations, “taking a waitand-see approach until the government starts to roll out its fiscal stimulus measures,” said Sarun Sunansathaporn, an economist at Bank of Ayudhya.

Mr Sarun sees the MPC holding the rate throughout 2019, as did eight of 10 economists in the poll giving a yearend view.

Rather than a rate change, Nomura economist Charnon Boonnuch in Singapore expects Wednesday’s statement tone to reflect the Bank of Thailand’s “more cautious view” on the outlook, given escalating US-China trade tensions.

In June, the central bank cuts its 2019 economic growth forecast to 3.3% from 3.8%, and predicted zero export growth.

But last week, Bank of Thailand official Don Nakornthab said exports might contract this year and secondquarter growth was likely below the 2.8% tallied from January to March, the weakest in over four years.

Southeast Asia’s second largest economy grew 4.1% last year.

Tim Leelahaphan, a Standard Chartered economist, expects a rate hold, but said there might be dissenters favouring a cut.

HSBC in a note predicted a policy change by year-end, likely next month.

ING sees one 25-basis-point cut on Wednesday and another in the final quarter, as data shows “the economy needs some policy stimulus”, Prakash Sakpal in Singapore said in a note. Cuts could help the central bank curb the baht’s appreciation pressure, he said, with recent regulatory measures “proving to be ineffective”.

The baht is Asia’s best performing currency this year, appreciating 5.7% against the dollar.