Thailand Leaves Monetary Policy Unchanged

The Bank of Thailand voted by four to two to keep the policy rate at 1.75 percent on February 6th 2019 meeting, after hiking it by 25 bps on the previous meeting, as widely expected. The Committee said that the current accommodative monetary policy stance would remain appropriate in the period ahead and would continue to support economic growth, financial stability and inflation. Still, two members voted to raises the policy rate by 25 bps to 2 percent.

Statement by the Bank of Thailand:
The Thai economy as a whole was expected to continue expanding around its potential despite increased downside risks. This was due to merchandise exports growth which was affected by the global economic slowdown, trade protectionism measures between the US and China, and a down cycle of electronic products. Meanwhile, tourism would improve mainly on the back of a faster-than-expected recovery in the number of Chinese tourists. Domestic demand momentum continued to expand. Private consumption was expected to expand on the back of increasingly broad-based improvements in both farm and non-farm income with additional supports from government measures. Nevertheless, private consumption was restrained by elevated household debt. Private investment was projected to expand thanks to the relocation of production base to Thailand and public-private partnership projects for infrastructure investment. Public expenditure would grow at a slower pace mainly due to the lower-than-expected actual spending and budget for current and capital expenditures as well as delayed investment by some state-owned enterprises.

Headline inflation was restrained by lower energy prices and subject to increased downside risks due to fluctuations in energy and fresh food prices. Core inflation would edge up given the gradually rising demand-pull inflationary pressures. The Committee viewed that structural changes contributed to more persistent inflation than in the past.
Financial conditions over the previous period had been accommodative and conducive to economic growth with ample liquidity in the financial system. Financial institutions gradually increased interest rates following the policy rate, especially deposit interest rates. Real interest rates rose but still remained at a low level, allowing financing by the private sector to continue expanding. Loans extended to businesses and consumers continued to grow. With regard to exchange rates, the Thai baht against the US dollar appreciated mainly due to the weakened US dollar. Looking ahead, the baht would likely remain volatile due to uncertainties pertaining to external front.
Financial stability remained sound overall but there remained a need to monitor risks that might pose vulnerabilities to financial stability in the future, especially the search-for-yield behavior amid the low interest rate environment that might lead to underpricing of risks. The Committee viewed that the implemented macro-prudential measures and the increased policy rate would help curb accumulation of vulnerabilities in the financial system to some extent.

Looking ahead, the Thai economy was projected to continue to gain traction although the external demand might slow down. The Committee viewed that accommodative monetary policy would remain appropriate in the period ahead, and thus would continue to monitor developments of economic growth, inflation, and financial stability, together with associated risks, in deliberating appropriate monetary policy in the period ahead.

Thailand Leaves Monetary Policy Unchanged

Bank of Thailand l Chusnul Ch Manan |
2/6/2019 7:57:18 AM