Committee votes 6-1 to keep rate at 2%, one wanted a cut; policy rate kept steady for 5th straight meeting; central bank sees room to lower rates, says will cut GDP forecasts
Reuters
Bangkok
Thailand’s central bank left the door open to a possible cut in interest rates as the economy is growing more slowly than it forecast earlier, but held its policy rate steady yesterday.
The Bank of Thailand (BoT) said at a policy review it would cut its GDP forecasts this year and next, although exports were poised to gradually pick up in 2015 with the global recovery.
The weaker outlook has put the military government’s hopes for a solid economic revival in doubt, and markets have turned increasingly bearish as consumption and investment slide.
The junta, who seized power in a coup in May to restore order after months of political unrest, are banking on infrastructure spending to boost growth but most of these projects are unlikely to bear fruit until next year or later.
The BoT’s monetary policy committee (MPC) voted 6-1 to hold the one-day repurchase rate at 2% for a fifth straight meeting. But one member wanted a 25 basis-point cut, citing the need for more accommodative policy to get the economy moving.
“The committee projects sustained economic recovery in 2015, and deems that the current monetary policy is sufficiently accommodative and does not hinder the ongoing recovery,” the MPC said in a statement.
All 19 economists polled by Reuters expected no change in the policy rate yesterday and also at its meeting in December, the last review of the year.
Mathee Supapongse, committee secretary, told a news conference the committee expects the economy to be on a recovery path next year, with a growth rate of more than 4%, “which is not bad.”
The committee will cut its economic forecasts for 2014 and 2015 from 1.5% and 4.8%, respectively, when it meets next month, he said.
Mathee said “there is still room to cut rates, if necessary. But that will depend on economic developments.” The central bank does not expect a big impact from the Bank of Japan’s bond buying programme on Thailand and has measures to cope, he said.
The policy rate has been at 2% since March, when it was cut by 25 basis points to help business activity.
With the economy still sluggish, views were mixed about the country’s growth trajectory and monetary policy.
“We still expect a flat rate until the first half of 2015. In our view, the Thai economy is unlikely to see a technical recession and hence we see a very low chance of a rate cut,” said Kampon Adireksombat, senior economist of Tisco Securities in Bangkok. But Santitarn Sathirathai, economist of Credit Suisse in Singapore, said: “With recent weakness in inflation, and the central bank’s more dovish statements today, we think the risk of further easing is even higher.”
Krystal Tan, economist with Capital Economics in Singapore, said the central bank would likely want to wait to see the impact of the government’s fiscal measures before deciding on its next move. “If growth continues to disappoint in the coming quarters, another rate cut cannot be ruled out,” she said.
Economic growth in the third quarter might have been weaker than expected, Mathee said, adding the MPC is concerned about global growth and possible delays to public investment spending.
Southeast Asia’s second-largest economy avoided a technical recession in April-June but still shrank 0.1% in the first half due to political unrest and poor exports.
Recent data showed the economy is in a spotty recovery, with annual exports unexpectedly rising in September but factory output and car sales still falling.
Soft global demand and lower commodity prices have hurt Thai shipments, while private consumption, which makes up half of the economy, remains weak as households are heavily indebted.
Credit Suisse predicts growth of 0.9% this year and OCBC Bank, 0-0.5%. Official third quarter GDP data is due on November 17.
This week, Deputy Prime Minister Pridiyathorn Devakula reiterated that the economy could grow 4% or even 5% in 2015, helped by public investment spending and recent stimulus measures worth 364bn baht ($11.2bn).
The baht lost as much as 0.3% to 32.755 per dollar, its weakest since June 3 after the central bank’s decision. The currency has lost 1.5% since a recent peak on October 21. The share market was down 0.5%.
