Thailand needs to keep policy space for future risks

BANGKOK: Thailand’s central bank saw a need to preserve monetary policy space to address possible future risks, when it kept its benchmark rate on hold last month, meeting minutes showed.

The Bank of Thailand (BOT) remains worried about the impact of the strength of the baht on South-east Asia’s second-largest economy and will consider implementing additional measures as needed, according to minutes of its Sept 25.

The baht is Asia’s best performing currency so far this year, up 7.3% against the US dollar, driven by Thailand’s hefty current account surplus and fund inflows. It traded at 30.32 dollar, the highest in more than six years.

“The Committee remained concerned about baht appreciation against trading partner currencies given the economic slowdown prospects, as the economy could be more sensitive to greater currency appreciation,” the minutes said.

“This would be an additional pressure on the softening domestic demand, particularly export-related manufacturing and services sectors”.

BOT governor Veerathai Santiprabhob (pic) told Reuters on Friday the central bank planned to further relax rules on fund outflows by the end of the year to help balance flows.

At the Sept 25 meeting, policymakers left the policy rate unchanged at 1.50% after August’s surprise cut - its first since April 2015.

The central bank also downgraded its 2019 economic growth outlook to 2.8% from 3.3%. Last year’s growth was 4.1%. The next monetary policy review is on Nov 6.

“The committee saw the need to preserve policy space in order to cushion against possible risks in the future and deemed it necessary to monitor the impact of the policy rate cut and fiscal stimulus measures on the economy,” the minutes said.

Some committee members felt that “given the already accommodative monetary policy stance, the policy rate cut might not lend significant additional support to economic growth”, compared with potentially increased financial stability risks.

While some financial system risks had been partly addressed by macroprudential measures, other risks to financial stability had not improved and warranted monitoring, the minutes said.

High and rising household leverage could lead to an accumulation of risks in the household sector, the minutes said.