Thailand keeps 1½% rate, expects later return of inflation to target

By Wendy Van Sickle

Columbus, Ohio, Nov. 9 – Bank of Thailand’s Monetary Policy Committee again voted unanimously to hold the policy rate at 1½% at its meeting on Wednesday, according to a government notice.

In doing so, committee judged that the Thai economy continued to expand at a pace close to the previous assessment despite greater downside risks domestically and abroad. Inflation was expected to increase and to return to the target later than expected due to supply-side factors.

Since the previous meeting, the committee said exports of industrial goods exceeded expectations, while private investment remained low. Tourism is expected to slow as a result of the government’s measures to curb “zero-dollar tours.” Public expenditure continued to be an important growth driver.

Overall the committee assessed that the Thai economy remained on a recovery path, but downside risks increased from a potential drop in Chinese tourists as well as uncertainties over political developments in the United States and Europe.

Headline inflation in October softened slightly on fresh food prices, but core inflation remained stable.

“Overall monetary conditions remained accommodative and conducive to the economic recovery as reflected in low real interest rates and government bond yields,” the committee said.

“Nonetheless, the baht appreciated against key trading partner currencies which might not be beneficial to the ongoing economic recovery. In addition, financial stability remained sound and able to provide cushion against potential shocks and volatilities in financial markets. However, there remained pockets of risks that warranted close monitoring, such as the deterioration in loan quality of some business sectors and the search-for-yield behavior under the prolonged low interest rate environment.”

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

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