There is no need to cut interest rates to counter the impact of China's slowdown on the economy as fiscal stimulus is driving slow, but steady, growth, the central bank governor says.
"We don't see any need to change the current monetary policy framework that we have," Bank of Thailand governor Veerathai Santiprabhob, who began a five-year term in October, told Reuters in an interview Tuesday.
"We see growth picking up although slowly and gradually."
Southeast Asia's second-largest economy has been hit hard as exports contract and domestic demand weakens at a time when household debt levels are high. China is one of the country's top trade partners and any deterioration in its growth rate could curbs the exports on which the economy depends.
Policy would remain accommodative and there was room to cut if needed as headline inflation would be below the central bank's target range, he said. Headline inflation is forecast at 0.8% for 2016, below the 1-4% target range.
The BoT has left the benchmark interest rate at 1.50% since April after two cuts that took it close to the record low of 1.25% reached during the global financial crisis.
Mr Veerathai stuck to the central bank's forecast of 3.5% economic growth for this year, although he said any further fall in global oil prices might lead to a revision.
He described the World Bank's 2% forecast as an "outlier" that did not take into account government stimulus.
On Feb 15, the state planning agency will report full-year 2015 growth. The BoT has forecast 2.8%, compared with 0.9% in 2014.
More resilience
Thailand has been more resilient to volatility than many emerging markets this year as foreigners hold a relatively small amount of bonds and stocks so markets are less susceptible to capital flight, Mr Veerathai said.
Weak external demand has exacerbated the challenges faced by the government, which has been trying to revive the economy. Exports, worth more than 60% of GDP, have shrunk for three straight years and the central bank has forecast zero growth in 2016.
Declining prices for farm exports and an increasingly outdated electronics and manufacturing sector have contributed to the fall.
Falling commodity prices and drought were challenges for the rural economy on which the majority of Thais depend, said the 46-year-old economics PhD from Harvard University.
Growth would be uneven and fiscal stimulus would need to be targeted at the rural economy to balance that out, he said.
To improve competitiveness, the economy needs structural reforms, he said. State-owned enterprises needed restructuring and government investment needed to accelerate further to compensate for slow spending during years of political turmoil, he added.
Joining trade pacts such as the Trans-Pacific Partnership would also help sharpen Thailand's competitiveness, he said. At present, Thailand is not a TPP member, but the government has said it is considering seeking to join.