Thailand's monetary policy is expected to remain accommodative until year-end, given that high foreign reserves and subdued inflation provide the policy space, says the Asean+3 Macroeconomic Research Office (Amro).
Even though several Southeast Asian central banks started tightening monetary policy in sync with the US Federal Reserve, the Bank of Thailand is expected to leave the benchmark rate on hold throughout this year as its economic fundamentals are different from others, said Khor Hoe Ee, chief economist of Amro.
"Thailand has high foreign reserves and there is no inflationary pressure," he said.
Amro is the research and monitoring unit of the Chiang Mai Initiative, a multi-country currency swap agreement that was created in the aftermath of the global financial crisis.
The global economic recovery has prompted some Asean central banks to follow in the footsteps of the US Federal Reserve in shifting away from an accommodative monetary stance. The Malaysian central bank raised its policy rate in January, while the Monetary Authority of Singapore tightened its monetary policy in April. The Philippines and Indonesia lifted their policy rates last month.
The Bank of Thailand's policy rate call is scheduled for June 20, but the market expects it will keep the rate unchanged at 1.5%, where it has been since a 25-basis-point cut in April 2015.
According to Amro's Global Risk Map, risks facing Asean are a faster-than-expected tightening in global financial conditions and an escalation of global trade tensions, with spillover to the region coming in the form of capital outflows, higher borrowing costs and adverse impacts on trade and investment flows, said Mr Kohr.
If trade tensions between the US and China ratchet up, it will deal a blow to all countries in the region, including Thailand, as the country is in the global supply chain, but the robust global economic growth can help cushion the impact, he said.
Thailand boasts some of the highest levels of global value chain integration, particularly in terms of backward linkage among Asean economies. Thai companies' outward direct investments have also increased in recent years, particularly in Cambodia, Laos, Myanmar and Vietnam, given the relatively cheap labour, growing middle-income class and higher growth rates in these countries.
"As the Asean+3 has received large inflows into [their] bond markets, the risk of outflows triggered by global tightening or confidence shocks should be closely monitored," said Mr Khor. "Thailand should be immune from the impacts of the global rate hikes led by the US because of its high foreign reserves."
As of June 1, Thailand's international reserves totalled US$212 billion (6.7 trillion baht).
Amro forecast the Asean+3 will grow 5.4% this year, underpinned by resilient domestic demand and strong exports
Thailand aims to develop new growth engines through innovation, the Eastern Economic Corridor and its Thailand 4.0 agenda, he said.