Thai Central Bank, Lacking Cause to Change Policy, Holds Key Rate Again

Thailand's central bank on Wednesday (16/08) left its key interest rate where it has stayed for more than two years, as there continues to be no incentive to cut and no need to raise it now. (Reuters Photo/Jorge Silva)

By : Orathai Sriring and Kitiphong Thaichareon | on 9:00 AM August 17, 2017
Category : International, SE Asia

Bangkok. Thailand's central bank on Wednesday (16/08) left its key interest rate where it has stayed for more than two years, as there continues to be no incentive to cut and no need to raise it now.

As expected, the Bank of Thailand (BOT)'s Monetary Policy Committee voted unanimously to keep the one-day repurchase rate at 1.50 percent, where it has been since April 2015.

The MPC reiterated its long-held view that the current rate supports economic recovery, and that domestic liquidity is ample.

It said Thailand's growth outlook "improved further on the back of the expansion in merchandise and services exports. Meanwhile, domestic demand continued to expand at a gradual pace, although it was not sufficiently broad-based."

Inflation has been very low, and that gives the BOT room to cut its key rate, but the central bank doubts a cut would aid growth and it could exacerbate problems with already-high levels of household debt.

BOT Assistant Governor Jaturong Jantarangs told reporters that there was no need to cut rates further, even though inflation might return to its 1-4 percent target range later than expected.

Many economists agree the central bank can keep policy unchanged.

No Pressing Need

"There is no pressing need for the BOT to adjust rates any time soon," said Shilan Shah of Capital Economics. "With the economy showing clear signs of recovery, monetary loosening seems unlikely."

All 21 economists polled by Reuters forecast no policy change on Wednesday, and most expect no change for the rest of this year.

While the central bank is counting on fiscal spending to aid economic growth, which still lags regional peers, public investment growth was softer than expected, the MPC said.

In Thailand, the strength of the baht, now at more than two-year highs against the US dollar, has been getting increasing attention.

Jaturong said the strong baht is affecting businesses that have not hedged against currency risks, and that the central bank will closely monitor the foreign exchange market.

The baht is emerging Asia's strongest currency this year, appreciating about 7.5 percent against the dollar.

To try to reduce the level of household debt, the BOT last month announced tighter rules on credit cards and unsecured loans.

At its July 5 meeting, the BOT raised its forecast for economic expansion this year slightly to 3.5 percent, due mainly to stronger exports, traditionally a key growth driver.

The economy grew 3.2 percent last year.

Reuters

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