Central bank seen holding key rate amid soft growth, strong baht

Central bank seen holding key rate amid soft growth, strong baht

The central bank is expected to leave its benchmark interest rate steady on Wednesday after last month's cut, a Reuters poll showed, despite slow growth, a strong baht, below-target inflation and policy easing moves by other central banks.

In the poll, 13 of 20 economists predicted the Bank of Thailand's (BoT)  monetary policy committee (MPC) will keep its one-day repurchase rate at 1.50%.

The other seven forecast a 25 basis-point cut to the record low of 1.25%, a level seen during the global financial crisis.

In August, the MPC unexpectedly cut the rate by a quarter point, the first easing since April 2015, unwinding December's hike.

While several factors support further easing, the BoT is worried about risks to financial stability and likely will want to wait to see the impact of last month's cut and 316 billion baht government stimulus measures.

Thammarat Kittisiripat, economist of Tisco group, sees no policy change Wednesday, though he expects the BoT to downgrade its growth outlook and to "signal possible easing" in future.

Last month's rate cut "did little to weaken the baht and MPC members suggest the trade off between short-term gains at the expense of financial stability is not optimal," said Kobsidthi Silpachai, head of capital markets research of Kasikornbank, who expects no BoT policy change on Wednesday.

BoT Governor Veerathai Santiprabhob last month described the key rate as very low, and also said the central bank at Wednesday's meeting would lower its current 2019 growth forecast of 3.3%. Last year's pace was 4.1%.

Southeast Asia's second-largest economy grew 2.3% in the second quarter, the weakest annual pace in almost five years.

The baht is Asia's best performing currency this year, up 6.8% against the dollar, adding to pressure on Thailand's trade-reliant economy amid global trade tensions.

Ten of 12 analysts who gave a longer-term view saw the rate falling to 1.25% by the end of this year.

Nomura economist Charnon Boonnuch in Singapore sees a second consecutive rate cut on Wednesday, as "headwinds to GDP growth remain high and inflation is likely to come in below the BoT's target this year".

Annual headline inflation was 0.52% in August, below the BOT's target range of 1-4%.

"The BoT has little choice but to cut rates as challenges to growth increase," said Tim Leelahaphan, Standard Chartered economist, adding limited fiscal support could cause markets to price in further cuts below 1.25%.

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