Thailand can deploy monetary and fiscal steps to cushion the effects of low inflation and slow economic growth as the country's recovery remains modest and there are downside risks, the International Monetary Fund (IMF) said on Thursday.
The recovery is expected to advance at a moderate pace in the near to medium term amid risks such as global uncertainty and financial volatility, the IMF said in a statement after completing its annual review of Southeast Asia's second-largest economy.
"A mutually reinforcing policy mix of fiscal and monetary stimulus, coupled with structural reforms and a flexible exchange rate, can support domestic demand in the short run and boost potential growth over the long run," the IMF said.
"Policy space and ample buffers can be deployed to minimise the risk of a low-inflation, low-growth trap," it said.
The IMF said a number of its directors supported the central bank preserving the monetary policy space at this time, with adjustments to the stance when warranted by new developments.
The agency revised slightly higher its growth outlook for the economy to 3.2% this year, from 3% in its April report. That compares with the Bank of Thailand's forecast of 3.4% growth. Last year, the economy expanded 3.2%.
The central bank has left its benchmark interest rate unchanged at 1.5%, near the record low, since April 2015. It next reviews monetary policy on July 5. Most economists expect no policy change through 2017.
The IMF said its directors emphasised the importance of maintaining the baht's exchange flexibility, with intervention limited to avoiding disorderly market conditions, it said.
A few directors noted that there was scope for scaling back the overall size of interventions, and allowing the exchange rate to play a greater role as a shock absorber, given substantial external buffers, the IMF added.
The baht traded at 34.11 per US dollar on Thursday, hovering near its highest against the dollar in more than 22 months.
It has appreciated 5% against the greenback so far this year, becoming Southeast Asia's best performing currency.