BoT seen holding rates steady to aid recovery

BoT seen holding rates steady to aid recovery

A bank employee puts new 70 Baht bank notes into an envelope before they start selling the notes printed by the Thai Central Bank in Bangkok, June 8, 2016. (Reuters file photo)
A bank employee puts new 70 Baht bank notes into an envelope before they start selling the notes printed by the Thai Central Bank in Bangkok, June 8, 2016. (Reuters file photo)

Economists agree that Thailand's central bank on Wednesday will keep its low benchmark interest rate where it has been for more than two years, in line with the economy's current position.

Inflation is benign, economic recovery is slow and household debt levels remain high, they say.

All 22 economists surveyed by Reuters forecast the Bank of Thailand's one-day repurchase rate will be kept at 1.50%, just a quarter-point above the record low, when its monetary policy committee (MPC) meets.

Thailand's last rate change, a cut, was in April 2015.

The central bank has said monetary policy still supports economic recovery, which continues to face global uncertainty, while it remains concerned about the hunt for higher yield in a prolonged low interest rate environment and high household debt.

Headline consumer prices, which dipped for a second month in June, give policymakers plenty of room to hold rates low, despite the US Federal Reserve's policy tightening.

With the recovery slow and real interest rates still high, "we don't expect the BOT to follow the path of the Federal Reserve in the immediate future", said Charnon Boonnuch, economist at Tisco Securities in Bangkok. He projects no rate change this year.

In the poll, 14 of 15 analysts who gave a view on the year-end rate level expected no change but one predicted a hike in the second half if fund outflows resume.

But analysts said a rate hike was not needed now as it would only strengthen the baht, which has appreciated more than 5% against the dollar this year, threatening a recovery in exports, a key driver of Thai growth.

At its May 24 review, the MPC said policy should remain accommodative.

Growth in Southeast Asia's second-largest economy has lagged regional peers in recent years. The BOT, which forecast growth of 3.4% this year, will review that projection on Wednesday.

The economy expanded 3.2% last year.

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