The Monetary Policy Committee (MPC) yesterday voiced stronger concern over the brisk trade in property and equities and the surge in bank credit but still kept its policy interest rate unchanged at 2.75%.
With one member absent, the MPC voted 5:1 to hold the rate and vowed to keep a close watch on baht and foreign capital movements.
The market interpreted the MPC's stance as inclining towards a rate hike but held different views on whether it could happen this year.
Paiboon Kittisrikangwan, a central bank assistant governor, said the voting results reflected the MPC's views regarding the baht appreciation's effect on the economy.
It also showed increasing concern over household debt and rapid increases in property and equities prices, he said.
"The MPC believes the economy is strong enough and can adjust to changes in foreign exchange value," said Mr Paiboon.
"The MPC maintains the view that credit growth and household debt remains high. Property transactions have been robust, significantly pushing up prices at certain locations, while equity prices have surged recently."
Mr Paiboon said the dissenting member who voted for a rate cut was concerned primarily about the global economic outlook and volatility in capital inflows.
The post-meeting statement showed the MPC maintained its bullish views on domestic demand as a key growth engine.
Bolstering domestic demand will be the growing impetus of private investment stemming from government flood management projects under the 350-billion-baht off-the-budget executive decree and the start of large-scale infrastructure work, it said.
The MPC perceived a slightly increased risk in the euro zone but a better outlook in the US, Japan and China and so predicted a slow increase in exports.
"The MPC judges that given the fragile state of the global economy, continuation of an accommodating stance on monetary policy remains appropriate. However, risks to financial stability including a volatile exchange rate and capital flows remain a concern," said the post-meeting statement.
HSBC analysts expect the MPC will gradually raise the interest rate late in the third quarter.
Citibank expects a further slight appreciation of the baht this year, which will serve as policymakers' means of curbing inflation and an overheating economy.
It believes the policy interest rate could remain unchanged for the rest of this year.
Siam Commercial Bank also expects a stable interest rate until year-end.
The robust economy reduces the chances of the MPC cutting the rate, while the risk from inflows could prevent a rate increase, it believes.
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- Writer: Parista Yuthamanop