The Bank of Thailand's rate-setting panel kept the policy interest rate unchanged yesterday after two cuts this year but signalled that a further rate reduction was still likely as the focus of monetary policy skews towards supporting economic growth.
Monetary policy still has room to manoeuvre, depending on economic developments in the coming period, said Mathee Supapongse, the committee's secretary and assistant governor for monetary policy.
"The policy space still remains, and the committee has said it is prepared to use available tools [for supporting recovery momentum]," he said.
The seven-member Monetary Policy Committee (MPC) voted unanimously to stand pat on its 1.5% benchmark interest rate, judging its policy had eased monetary conditions and that the direction of exchange rate movement had become more conducive to economic recovery.
The MPC considered the economy had recovered at a pace close to its assessment at its previous meeting.
However, Thailand's economy remains subject to downside risks from global economic conditions, particularly a slowdown in the Chinese and other Asian economies, so the monetary policy stance should continue to be accommodative to support an economic recovery, Mr Mathee said.
"Going forward, the committee will closely monitor Thailand's economic and financial developments and stand ready to use the available policy space appropriately in order to support the ongoing recovery and maintain long-term financial stability," the MPC said in a statement.
The rate-setting panel unexpectedly cut its policy interest rate at two previous meetings this year by a quarter-percentage point each time in a move the MPC described as harsh medicine to ward off downside risks to economic growth.
Paiboon Kittisrikangwan, a member of the MPC and the central bank's deputy governor for corporate services and banknote management, recently called Thailand's monetary policy "highly accommodative" and said a further rate reduction would do little to boost growth.
Finance Minister Sommai Phasee has said further rate cuts are not needed since the current level is Southeast Asian's lowest and further easing would hurt savings.
Mr Mathee said the MPC had discussed other tools to manage foreign exchange apart from pass-through effects of the policy interest rate, but he declined to reveal any specific measures.
The central bank's revised growth data will be announced on June 19, he said, adding that there was a high possibility that annual exports would register a contraction this year, down from 0.8% growth predicted earlier.
The central bank earlier said it planned to cut its economic growth forecast for this year from 3.8%, as it expected the pace of recovery in the second quarter would remain fragile, especially for private consumption and export growth.
Charl Kengchon, managing director of Kasikorn Research Center, said the possibility remained that the data-dependent MPC might call for another rate reduction at its next meeting on Aug 5 if Thailand's economic data and the regional economic outlook were lower than expected.
The MPC may hope the baht's value will become more competitive after a rate cut, as pass-through effects from a lower benchmark rate on foreign exchange have been more tangible compared with those of financial institutions' interest rates, he said.