MPC maintains policy interest rate at year’s final meeting
The Bank of Thailand’s Monetary Policy Committee (MPC) yesterday kept its policy interest rate unchanged as expected, seeing brighter prospects for upside risks to this year’s economic growth.
The MPC assessed this year’s GDP growth could be higher than the present 2.7% estimate on the back of the government’s recent stimulus measures and continued expansion in private consumption, said Jaturong Jantarangs, assistant governor for monetary policy group and the MPC’s secretary.
The seven-member rate-setting panel voted unanimously at this year’s final meeting to maintain the current 1.5% benchmark interest.
Mr Jaturong said the MPC reasoned the pace of economic recovery had gained traction in the third quarter, supported by high disbursement of public expenditure, increased private consumption of necessities and improved tourist arrivals.
“[Thailand’s] economic recovery will take time to be assessed, and [the recovery momentum] is the main subject [for policy deliberation],” Mr Jaturong said.
“There’s still room [for further monetary easing]. The committee said in the last sentence [of its statement] that it ‘stands ready to use an appropriate mix of available policy tools’ if [the economic recovery momentum] falls short of expectations or worsens substantially.”
Last month, the National Economic and Social Development Board surprisingly reported strong GDP growth of 2.9% yearon-year in the third quarter after 2.8% in the second quarter and 3% in the first quarter.
After a seasonal adjustment, the economy expanded by 1% quarter-on-quarter in the third quarter.
In the first nine months, it grew by 2.9% year-on-year.
The central bank recently cut its economic growth forecast next year to 3.7% from 4.1%, but the forecast remains higher than the 2.7% projected for this year.
Its new GDP forecasts for this year and next will be announced on Dec 25.
Following two successive rounds of monetary easing in March and April to ward off downside risks affecting Thailand’s economic recovery impetus, the committee’s decision to hold the current benchmark interest rate could be considered maintaining financial stability and preserving monetary policy ammunition for use as necessary, Mr Jaturong said.
He said the MPC assessed that monetary conditions and foreign exchange rates still supported the domestic economic recovery, while the decision to hold the policy rate was also based on a potential rise in financial market volatility due to monetary policy divergence among advanced economies.
Next year’s economic growth forecast remains close to the previous projection of 3.7% due to public spending on infrastructure projects and a “crowding in” effect of investment flows generated through private investment, Mr Jaturong said.
He declined to comment on the central bank’s inflation target for next year, saying the cabinet was still deliberating the issue.
However, Mr Jaturong did say headline inflation was expected to turn positive in the first half of next year as the base effect of last year’s high oil prices waned.
The Cabinet approved a new inflation target in January, as proposed by the Finance Ministry and the Bank of Thailand.
As a result, Thailand’s inflation targeting framework is now based on headline inflation set between an annual average of 2.5% plus or minus 1.5% (or 1-4%).
Previously, the central bank’s monetary policy stance since 2000 was based on targeting core inflation of 0.5% to 3%.
Regarding expectations of the US Federal Reserve’s rate rise, Mr Jaturong said the extent to which each country would be affected depended on external financial conditions, but Thailand was in a good position to withstand such a rate normalisation scenario.
He cited the country’s high foreign reserves, low short-term external debt and how the private sector’s debt was largely associated with large corporations that showed sound profits for debt repayment.
The market consensus is the Fed will not normalise its federal funds rate aggressively next year, as that would affect financial conditions and foreign exchange rates for the rest of the world, subsequently incurring repercussions on the US economy, Mr Jaturong added.