The Bank of Thailand's Monetary Policy Committee (MPC) yesterday maintained the policy rate at 1.5% as widely expected and held its GDP growth forecasts for this year and next at 3.2%.
Robust private consumption is expected to be cancelled out by weak private investment and lower-than-expected growth in exports.
The rate-setting committee estimated that the Thai economy would continue to expand at a pace close to the previous assessment but downside risk to growth has increased, said Jaturong Jantarangs, assistant governor of the monetary policy group and the MPC's secretary.
"Monetary conditions remain conducive to the economic recovery," he said. "Hence, the committee decided to keep the policy rate on hold at this meeting."
Headwinds that the MPC is cautious about in 2017 include the economic recovery of the country's trading partners, US trade policy and the number of Chinese tourists visiting Thailand.
Mr Jaturong said that private consumption had expanded more than was expected in the third quarter, while higher farm income and the government's short-term stimulus measures will continue to be a boon to private consumption.
The Bank of Thailand revised its forecast for private consumption growth to 2.7% this year and 3.1% for next, up from 2.1% and 2.6%, respectively.
Private investment was revised down to a 0.6% contraction this year from 1.1% growth projected earlier. The central bank also cut its projection for private investment growth next year to 1.6% from 1.7%.
"Private investment is what the MPC is always concerned about, as we think that more investment is needed to accelerate economic growth," Mr Jaturong said.
Private investment has targeted certain sectors such as public utilities, alternative energy and the service sector, while the manufacturing sector has seen the weakest investment.
"In the past, when the economy expanded at 4-5%, private investment was the main driver," he said. "State investment in infrastructure projects together with the government's short and medium-term stimulus measures won't be able to substitute for it."
Due to the crackdown on illegal tour operators, the Bank of Thailand also revised down its forecast for the number of foreign tourist arrivals by 1.2 million this year and 2.2 million in 2017 to 32.4 million and 34.1 million, respectively.
The central bank raised its merchandise export forecast to a 0.6% contraction this year from a previously predicted 2.5% fall and flat growth next year from a 0.5% contraction.
Mr Jaturong said higher interest rates abroad and global bond yields are less likely to pressure the Bank of Thailand to jack up its policy rate.