As expected, the Bank of Thailand's Monetary Policy Committee (MPC) kept its policy rate unchanged yesterday, saying the rate remains accommodative for economic recovery because domestic demand is not sufficiently broad-based.
The comment reinforced the view of economists that the central bank will hang fire on the benchmark rate until year-end.
The seven-member rate-setting committee with one absentee member voted unanimously to leave the one-day repurchase rate unchanged at 1.5%, where it has stood since April 2015.
The MPC assessed that Thailand's growth outlook had improved further on the back of expansion in merchandise and services exports, said Jaturong Jantarangs, assistant governor of the monetary policy group and the MPC secretary.
"Meanwhile, domestic demand continued to expand at a gradual pace, though it was not sufficiently broad-based," he said.
Private consumption continued to grow at a gradual pace but did not accelerate significantly from the earlier period.
The MPC also noted that public investment grew more softly than expected.
"The softer-than-expected growth in public investment was mainly due to the slow disbursement of the government's mid-year budget to invest in the provincial areas," Mr Jaturong said.
Private investment was projected to expand slowly as construction investment moderated.
"With regard to exchange rate movements over the recent period, the baht appreciated due to decreased investor confidence in the US dollar, coupled with Thailand's stronger external position," Mr Jaturong said.
Offshore inflows into Thai bond and stock markets have been spotted, but the amount remains comparable to the levels of regional peers, he said.
"The MPC noted that the stronger baht relative to those of regional currencies in some periods might affect business adjustments, and thus will continue to closely monitor developments in the foreign exchange market," Mr Jaturong said.
He said there was no talk among MPC members about additional measure to curb the baht, other than regular interventions in the foreign exchange market.
In the central bank's view, the stronger baht has had a minimal effect on the quantity of goods exported, as shipments rely more on global demand than currency value.
"However, it [the stronger baht] could affect the profit of exporters in some sectors that have yet to appropriately hedge," Mr Jaturong said.
He said the floods in the Northeast were estimated to shave 7.5 billion baht off the country's economic value. The damage will be taken into consideration at the MPC's next meeting on Sept 27.
Mr Jaturong said headline inflation has increased at a slightly slower pace than in the previous assessment, primarily due to supply-side factors.
In particular, fresh food prices declined as a result of this year's higher agricultural output, favourable weather conditions and base effects after last year's drought.
Meanwhile, demand-pull inflationary pressures remained low.
At the MPC's July meeting, the committee estimated that headline inflation would reach the lower band of the inflation target of 1-4% in the fourth quarter of this year or the first quarter of 2018.
"Assessing the current data, headline inflation is less likely to reach the lower band this year," Mr Jaturong said.