Thailand opts to keep rate at 1½% as Thai economy gradually recovers

By Marisa Wong

Morgantown, W.Va., Dec. 16 – Bank of Thailand’s Monetary Policy Committee voted unanimously to maintain the policy rate at 1½% at its meeting on Wednesday.

The committee said that from the third quarter to October, the Thai economy gradually recovered, supported by high disbursements of public expenditures, an expansion in private consumption of necessity goods and an improving number of tourist arrivals, especially Chinese tourists.

Meanwhile, merchandise exports continued to contract, and going forward would continue to face downside risks from a slowdown in the Chinese and other Asian economies and subdued commodity prices, the committee said.

Nevertheless, the economic growth forecast for 2015 was revised slightly up on the back of continued expansion of consumption and fiscal stimulus measures. The economic growth forecast for 2016 remains close to the previous assessment.

Inflationary pressure declined slightly from the previous meeting due mainly to a fall in global oil prices, causing headline inflation to stay in negative territory, the bank noted. However, headline inflation is projected to rise gradually and to turn positive during the first half of next year, as the base effect of high oil prices wanes.

Meanwhile, deflationary risks remain contained as demand continues to expand and core inflation is still positive, consistent with the public’s medium-term inflation expectations.

The committee said it assessed that monetary conditions and the exchange rate remain supportive of economic recovery. Moreover, given financial stability considerations and a potential rise in financial market volatility due to monetary policy divergence among advanced economies, the committee believed the policy interest rate should be kept unchanged at the latest meeting.

The committee will, however, continue to closely monitor downside risks to growth, particularly those stemming from a slowing global economy, structural limitations, and uncertainty in the global financial markets.

As previously reported, the committee lowered the rate by 25 basis points to 1½% in April 2015, by 25 bps to 1¾% in March 2015 and by 25 bps to 2% in February 2015.

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