Central bank seen holding key rate at record low

Central bank seen holding key rate at record low

The Bank of Thailand (BoT) is expected to leave its benchmark interest rate at a record low on Wednesday after two cuts this year, a Reuters poll showed, although it was likely to downgrade its growth outlook again.

All 16 economists in the poll predicted the BoT's monetary policy committee (MPC) will keep its one-day repurchase rate at 1.25%, a record low last seen during the global financial crisis.

The rate was reduced by 25 basis points each in November and in August amid flagging growth, below-target inflation and a strong baht.

Last month, BoT Governor Veerathai Santiprabhob said the rate was already low and could not be cut much further, though his deputy, Mathee Supapongse, told Reuters there was still monetary policy room to help growth if needed.

"We expect the BoT to pause, as two previous rate cuts already took the policy rate to its record low of 1.25%, reflecting the BoT's concerns about limited policy space," said Charnon Boonnuch, an economist at Nomura in Singapore.

He said the BoT will resume cutting the rate in the first quarter of next year, as growth disappoints and inflation is still below the BoT's 1-4% target range.

The inflation target will be narrowed for next year, according to Finance Minister Uttama Savanayana.

Tim Leelahaphan, an economist at Standard Chartered, said he expected the MPC to hold the rate in a unanimous vote and highlighted the need for low rates.

The BoT will also give updated economic forecasts this week. BoT's Mathee said last month the central bank would likely lower its 2019 and 2020 economic growth outlook - currently at 2.8% and 3.3%, respectively. He said inflation would also miss earlier estimates.

Southeast Asia's second-largest economy grew less than expected in the third quarter, as exports have declined amid global trade tensions and the baht's strength has cut trade competitiveness. Last year's growth was 4.1%.

The baht is Asia's best performing currency this year, up 7.8% against the US dollar, despite the central bank's steps to rein in the baht's gains.

Earlier this month, Mr Mathee said the BoT remained worried about the strong baht and was ready to act against any rapid gains.

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