The Bank of Thailand's rate-setters see the need to keep monetary policy stable to cushion against possible future risks, according to the edited minutes of the Sept 25 meeting.
Some committee members thought a policy rate cut might not lend significant additional support to economic growth, given the already accommodative monetary policy, compared with the potential for greater financial stability risk.
"The committee deemed it necessary to monitor the impacts of the previous policy rate cut and fiscal stimulus measures on the economy," the minutes said.
At the Sept 25 meeting, the Monetary Policy Committee (MPC) unanimously held the policy rate unchanged at 1.50% after a surprise 25-basis-point cut in August, the first reduction since April 2015.
The MPC lowered the 2019 economic growth forecast in a third downgrade this year, from 4.2% predicted late last year to 3.8%, then 3.3% and now 2.8%.
Thailand's economy is losing momentum, with economic growth of 2.8% for the first quarter and 2.3% for the three months through June. Last year's growth was 4.1%.
Risks to the economic projection are skewed to the downside, with trading partners' economic growth slipping because of a number of uncertainties, including trade spats, a longer downturn in the electronics market cycle, Brexit negotiations and geopolitical risks. All of these factors have had the cumulative effect of lowering Thai merchandise exports.
Domestic demand could be lower than expected because of uncertainties regarding government policy implementation, delays in public-private partnerships for infrastructure investment projects and a further weakening of household purchasing power as a result of deteriorating employment in export-related sectors and the fallout from natural disasters.
While some financial system risks that could pose vulnerabilities to future financial stability have been partially addressed by macroprudential measures, other risks to financial stability have not improved and warrant monitoring, the minutes said.
These risks include swelling family debt; search-for-yield behaviour in the prolonged low-interest-rate environment, which could lead to underpricing of risks, especially for savings cooperatives and leverage for large corporations; and greater risk in the real estate sector, especially with the oversupply situation in some areas.
"High and rising household leverage could lead to an accumulation of risks in the household sector," the minutes said.
Thailand has one of the highest levels of household debt in Asia, at 78.7% of total GDP at the end of March, which was also the highest since the first quarter of 2017.
The committee believes that a comprehensive understanding of different characteristics among households, such as those with different financial positions, those with high debt and fragility, and those without financial discipline, is necessary to design targeted and appropriate solutions to the household debt problem.
Wary of firmer baht
Policymakers remain concerned about the impact of the baht appreciation against trading partner currencies and will consider implementing additional measures at the appropriate time if necessary, the minutes said.
The additional measures include continuing to relax capital outflow regulations to encourage Thai residents to increase portfolio investment abroad, as well as investments that require collaboration with other organisations, including efforts to stimulate investment to reduce the elevated current account surplus.
Yesterday the baht was the strongest against the US dollar since June 2013 at 30.32. The local currency is Asia's top-performing currency this year, gaining 7.3% against the greenback, driven by Thailand's high current account surplus and fund inflows.
"The committee remained concerned about the baht appreciating against trading partner currencies given the economic slowdown prospects, as the economy could be more sensitive to greater currency appreciation," the minutes said. "This would add to pressure on softening domestic demand, particularly export-related manufacturing and services sectors."