Governor: External buffers render interest rate hike unnecessary
The central bank is under no immediate pressure to raise interest rates in line with emerging-market peers, given the nation's solid buffers and relatively strong currency, says governor Veerathai Santiprabhob.
The Bank of Thailand is monitoring economic developments closely, including risks to the growth outlook from trade protectionism, Mr Veerathai said in an interview with Bloomberg TV's Haslinda Amin in Bangkok.
Inflation has returned to the 1-4% target range but remains subdued, he said.
"With our strong external position, the need for Thailand to increase the policy rate is not as imminent as in other emerging markets," he said. "We have sufficient buffers and do not face the same pressures as other emerging markets that might be vulnerable to global financial conditions. We can use our monetary policy autonomy to meet the needs of our economy."
Mr Veerathai struck a more dovish tone than last week, when he said the central bank was waiting for the right time to consider an interest-rate hike, prompting some analysts to call for a policy move later this year.
The Bank of Thailand has kept its benchmark rate at 1.5%, near a record low, since 2015, in contrast to counterparts in Indonesia, the Philippines and others, which have tightened policy this year in the face of currency turmoil.
Thailand's strong foreign-exchange buffers and current-account surplus have sheltered it from the worst of the emerging-market rout. The baht has advanced 1.8% against the dollar in the past month, the best performer among 22 emerging currencies tracked by Bloomberg.
Some investors consider the baht an emerging-market safe haven, and the currency has appreciated ahead of its peers, a combination "we are not quite comfortable with", Mr Veerathai said.
The economy grew 4.6% in the second quarter from a year ago after expanding at a five-year high of 4.9% in the first quarter. Exports of goods and services are equivalent to about two-thirds of GDP, according to World Bank data.
"Policy space is another key factor that accounts for the policy rate move," Mr Veerathai said Wednesday after giving a speech at the Thailand Focus 2018 forum hosted by the Stock Exchange of Thailand. "Sufficient space will make monetary policy management more flexible amid several uncertainties. However, the central bank's policy rate move is data-dependent."
The country's inflation has been subdued over the past few years. Thailand's core inflation, stripping out fresh food and oil prices, stood at 0.7% for the seven months through July.
Structural factors, including the ageing population, automation and e-commerce platform development contribute to the low inflationary pressure.
In the meantime, Kasikornbank (KBank) chief executive Banthoon Lamsam said his bank will not spearhead the market's rate increase, given the massive liquidity surplus in the local financial system.
His comment came after the Bank of Thailand's Monetary Policy Committee (MPC) discussed hiking the rate in the last two meetings, though the benchmark rate has been held at 1.5%.
The last time the central bank raised its policy rate was August 2011, with a quarter-point rise to 3.5%.
KBank, the country's third-largest bank by assets, led industry peers in cutting the minimum retail rate by 50 basis points last year.
Mr Banthoon said it's crucial for commercial banks to adapt after transaction fee-based income was hit by the digital channel waiver four months ago.