The Bank of Thailand's Monetary Policy Committee (MPC) kept its policy interest rate unchanged Wednesday for a second straight meeting.
It believed this year's two interest rate cuts and the baht at a six-year low were accommodative to exports and an economic recovery even though it saw more downside risks to growth.
The seven-member committee voted unanimously to maintain the benchmark interest rate at 1.5%, only 25 basis points higher than the record low of 1.25% implemented during the 2009 global financial crisis.
"The MPC is of the view that the monetary policy stance should continue to be adequately accommodative, and it stands ready to use an appropriate mix of available policy tools to support economic recovery while maintaining long-term economic and financial stability," said Mathee Supapongse, the central bank's assistant governor for monetary policy and the MPC's secretary.
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He declined to specify possible tools for stimulating the growth impetus apart from the policy interest rate and foreign exchange.
The MPC's decisions in the coming periods will be based on economic conditions, but monetary policy has induced a transmission effect towards a weaker local currency, which helps to support the economy, Mr Mathee said.
"A weaker foreign exchange rate is considered to be in the direction of lending support for the economic growth momentum despite it [the baht] depreciating quite rapidly recently," he said.
The baht on Wednesday fell again to 35.15/35.17 to the US dollar from 35.01/35.03 on Tuesday.
The rates were close to the 2009 low of 35.28. The baht is falling mainly in response to the greenback's strength on growing expectations of a potential rate hike by the US Federal Reserve this year and the Thai economic doldrums.
The baht has weakened 3.9% in the past month in Asia's second-worst performance, Bloomberg data shows.
Year-to-date, the currency has plunged 6%.
The benchmark interest rate was unexpectedly cut at two successive meetings in March and April by a quarter-percentage point each time, lowering it to 1.5% in a move the MPC described as a strong dose of medicine to ward off downside risks to economic growth.
The MPC on Wednesday discussed the possible Fed rate hike, but Thailand's economy is not expected to experience significant volatility, given its minimal position on external vulnerability compared with other regional countries, Mr Mathee said.
He said despite a gradual pace projected for domestic economic recovery during the rest of the year, downside risks in the second half included a slowdown in other Asian economies but particularly China, global economic uncertainty, severe domestic drought and a contraction in exports.
The Bank of Thailand recently announced it would trim this year's GDP growth forecast again to slightly below 3% due to the fragile domestic recovery and chronic depression in the global economy.
Its export projection will be similar to the 4% contraction forecast by the Finance Ministry's Fiscal Policy Office.
Thailand is an export-led growth country, with shipments accounting for 70% of GDP. Risks to financial stability remain limited, and the MPC will keep monitoring search-for-yield actions closely, Mr Mathee said.
He said the MPC would also continue to monitor rising non-performing loans and swelling household debt but cautioned concern about household debt was not growing since the ratio had been stabilised. Bank of Ayudhya economist Sarun Sunansathaporn said: "While BAY now maintains its baseline view of no more policy rate changes this year, we do see a rising probability that the MPC may consider further easing if the second-quarter GDP reading due on Aug 17 shows negative quarter-on-quarter growth."
The timing of a Fed lift-off will be a trivial factor in any MPC decision, he said, adding that if the Fed showed clear signs of a delay, that would give the MPC greater scope for further action.
Nalin Chutchotitham, HSBC's Thailand economist, said the central bank was expected to maintain a dovish bias, as the economy remained subject to substantial downside risks, particularly from softer-than-expected global economic growth and the country's severe drought.
"Therefore, we still expect one more rate cut in the third quarter, to 1.25%," she said.
Haren Shah, chief investment strategist for wealth management at Citi Asia Pacific, said all central banks worldwide were being more prudent about monetary policy amid the global economy uncertainty. Despite expectations of the Fed rate hike, the Bank of Thailand is independent in its policy rate moves, depending mainly on domestic economic circumstances.