Central bank holds rates again, but hike seen next month

Central bank holds rates again, but hike seen next month

People shop at a mall in Bangkok's Lat Phrao district on Aug 9. (Photo by Patipat Janthong)
People shop at a mall in Bangkok's Lat Phrao district on Aug 9. (Photo by Patipat Janthong)

The central bank held its benchmark interest rate steady on Wednesday as expected, but a widening split on the decision-making committee bolstered views that next month it could tighten policy for the first time in more than seven years.

The Bank of Thailand's monetary policy committee (MPC) voted 4-3 to hold its one-day repurchase rate at 1.5% to support the economy, which is continuing to gain traction despite slowing external demand.

The rate, unchanged since April 2015 and not hiked since August 2011, is just above the record low of 1.25% set during the global financial crisis.

On Wednesday, three members voted for a quarter-point increase, arguing that economic expansion was "sufficiently robust" and that a hike would curb financial stability risks that could affect longer-term economic growth and create room for changing policy later.

In September's meeting, two members voted for a rate increase, compared with one at August and June meetings.

After Wednesday's vote, the MPC said it felt "monetary policy should remain accommodative, although the need for currently accommodative policy would be gradually reduced."

In a Reuters poll, 19 of 22 economists had predicted the MPC would stand pat on Wednesday. The others forecast a 25-basis-point rise.

Charnon Boonnuch, economist of Nomura in Singapore, said the split vote supports his view the MPC will hike at its Dec 19 meeting, just before this year's last US Federal Reserve decision.

Kobsidthi Silpachai, head of capital markets research of Kasikornbank, said MPC members are concerned about building "policy space" should the next downturn arrive earlier than expected.

But given a "plethora of uncertainties", including the US-China trade war and Brexit, "waiting to tighten early next year seems a more optimal choice," he said.

With a hefty current account surplus and low inflation, Thailand is under no immediate pressure to follow rising US interest rates, unlike Indonesia and India -- which have current account deficits and fragile currencies.

Yet in the Reuters poll, 10 of the 16 analysts who gave a view predicted a 25 bps hike on Dec 19. The other six no change.

The central bank last raised its policy interest rate in August 2011, by a quarter-point to 3.5%.

Growth has picked up but remains heavily reliant on external demand. Exports have slowed while tourism has been hit by reduced numbers of Chinese visitors.

Last month, the central bank said growth in the July-September quarter likely slowed from the April-June pace.

Third-quarter GDP data is due on Nov 19.

The central bank forecast 4.4% growth this year. Last year's expansion was 3.9%, the best in five years.

The central bank said the baht would remain volatile.

The baht traded at 32.88 against the US dollar at 2.33pm. It has depreciated 0.9% this year, making it Asia's best-performing currency.

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