MPC pauses, cuts view

MPC pauses, cuts view

No rate cut despite weaker GDP outlook

The Bank of Thailand's Monetary Policy Committee (MPC) kept its policy rate unchanged yesterday even though it slashed this year's economic growth forecast to about 3%.

The rate-setting committee said the current benchmark rate of 2.25% is conducive to economic recovery and that maintaining financial stability remains a cornerstone.

However, economists believe a rate cut is still possible in the future.

MPC members voted four to three to hold the benchmark rate. The three dissenting members viewed low inflation and greater downside risks to economic growth as conducive to a reduction of 25 basis points.

Prasarn Trairatvorakul, the central bank governor, said the MPC assessed that the current relaxed monetary policy is appropriate in sustaining economic recovery amid short-term risks from domestic political tensions.

Maintaining financial stability in the long run also contributed to the majority decision not to lower the rate.

"The ongoing political situation poses risks to growth, but sound economic fundamentals should help the economy weather these short-term risks," the central bank's statement said.

The MPC trimmed the policy rate by 25 basis points to 2.25% at last year's final meeting in late November to cushion against downside risks to economic growth as political tensions started to grip Thailand.

Economic growth is cooling as political uncertainties and swelling household debt dent consumption, while delays to the 2-trillion-baht infrastructure projects after dissolution of the House have aggravated the already lacklustre economy.

Early this month, Indonesia's central bank also decided to stand pat after the country's current account deficit narrowed. Like Thailand, Indonesia is running out of growth momentum. It expanded by 5.7% in 2013 _ the slowest pace in four years _ due to weak global demand and slowing investment.

"Thai economic fundamentals remain sound in the short term despite domestic political developments," Mr Prasarn said.

"However, the country's long-term economic immunity is at risk of experiencing an increase in borrowing costs and diminished competitiveness if we do not address the ongoing problems."

Keeping monetary policy stimulus measures in place at a time of slower economic growth also contributed to the committee's majority decision, said Mr Prasarn.

He said an official announcement of this year's GDP growth forecast will be announced later, but the figure has been lowered to about 3%, down from an earlier projection of 4%, because of slow economic growth.

Economic growth for last year, meanwhile, has been trimmed to below 3%, he said.

Earlier, the Finance Ministry's Fiscal Policy Office lowered its 2014 economic growth forecast for the second time in less than a month to about 3% from 4%. It also cautioned that GDP growth could be lower than 2% due to the anti-government demonstrations.

Mr Prasarn said the government's budget disbursement is expected to continue without problems, but delays to both public and private investments will persist in the short term.

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