MPC rate unchanged on recovery
The Bank of Thailand’s Monetary Policy Committee (MPC) yesterday maintained its policy rating at 1.5% as widely expected in light of a better-than-expected economic recovery, but greater uncertainties regarding US policies and volatile exchange rates need monitoring, the panel said.
“The Thai economy recovered at a faster pace than the MPC earlier expected, supported by a more broad-based recovery in merchandise exports and a rapid recovery in tourism,” said Jaturong Jantarangs, assistant governor of the monetary policy group and the MPC’s secretary.
“Overall financial conditions remained accommodating and conducive to economic recovery although bond yields increased somewhat. Hence, the committee unanimously decided to maintain the policy rate at 1.5%.”
At its latest meeting, the rate-setting committee forecast 3.2% gross domestic product (GDP) growth this year.
“There are a lot of uncertainties regarding US policies under President Trump, which cou l d increase risks for Thailand,” Mr
Jaturong said.
Upside risks include infrastructure investments and lower income taxes, which could spur growth for the US while a trade protectionist stance is considered to be downside risk to the economic growth of Thailand, he said.
Mr Jaturong said that the MPC has asked central bank officials to conduct a scenario analysis of US policies and their effect on the Thai economy, which will be reflected in the GDP forecasts for this year and 2018, due to be announced in the next meeting in March.
“Capital flow has fluctuated highly in the recent period, mainly caused by the financial condition of foreign countries, especially the movement of the US dollar,” he said.
“It is our mandate to monitor and prevent any unusual fluctuations in the exchange rate with the existing instruments.”
Mr Jaturong said that financing costs of the private sector remain low and the increase of Thai bond yields have not affected private firms’ costs.
“Long term bond yields increased while short term bonds issued by the private sector have not yet been affected,” he said.
Mr Jaturong said risks remain that warrant close monitoring such as the deterioration in loan quality of some business sectors and defaults of unrated bonds issued by certain companies.
He said that the MPC does not consider these defaults of unrated bonds as systematic risks to the financial market.