The Bank of Thailand (BoT) left its benchmark interest rate unchanged after last month’s surprise reduction, and said it may consider steps to rein in the currency’s strength as economic growth weakens.
The Monetary Policy Committee voted unanimously Wednesday to hold its key rate at 1.50%, the central bank said in a statement. That was in line with the forecasts of 21 of 29 economists surveyed by Bloomberg, with the rest expecting a cut to 1.25%.
Authorities are providing monetary and fiscal support to spur growth, which the central bank now expects will be lower this year than previously forecast. Aside from global concerns, growth is also being undermined by the baht, which has gained more than 6% against the dollar so far this year, the best performer in Asia.
“With economic growth set to remain weak and concerns about the strength of the baht mounting, we think the central bank will loosen policy again before the end of the year,” Capital Economics Ltd’s senior Asia economist Gareth Leather wrote in a research note.
The central bank cut its growth forecast for the year to 2.8% from 3.3% predicted in June, and lowered next year’s forecast to 3.3% from 3.7%. It also sees exports contracting 1% this year, compared with a previous projection of no growth.
The baht reversed earlier losses and advanced as much as 0.1% before trading little changed at 30.549 per dollar as of 2.56pm in Bangkok.
Policy makers “expressed concerns” about the currency’s appreciation, “which might affect the economy to a larger degree amid heightened uncertainties pertaining to the external front,” the central bank said in a statement. The MPC will consider “additional appropriate measures if necessary,” it said.
Chang Wei Liang, a macro strategist at DBS Group Holdings Ltd, said the risk lies on the side of more policy easing from the central bank. The baht “looks overly firm despite a softening export outlook, and this could warrant a rate cut in order to reverse a tightening of monetary conditions from exchange rate appreciation,” he said.
Inflation remains benign at 0.52% in August, well below the central bank’s 1%-4% target band. The central bank expects to miss its target again this year, forecasting inflation of 0.8% for this year, down from 1% previously.