Thailand’s central bank left its benchmark interest rate unchanged near a record low as expected, and said it is closely monitoring the baht’s volatility and its impact on the economy.
Six of the seven monetary policy committee members present at the meeting voted to hold the one-day bond repurchase rate at 1.5%, where it’s been since 2015, according to a statement on the Bank of Thailand’s website on Wednesday. One MPC member voted for a 25 basis-point increase. All 20 economists surveyed by Bloomberg predicted the rate would stay on hold.
“The committee viewed that the current accomodative monetary policy stance remained conducive to the continuation of economic growth and was appropriate given the inflation target,” the central bank said in a statement.
Thailand’s hefty foreign reserves and a current-account surplus have helped to shield the nation against the worst of the volatility engulfing emerging markets, giving the central bank more time to refrain from raising rates. But policy makers have started to lay the groundwork for rate hikes as inflation picks up and economic growth strengthens.
Assistant Governor Jaturong Jantarangs said on Wednesday there will be less need for a loose monetary policy over time.
“The need to use an accommodative monetary policy will continue to lessen over time,” Mr Jaturong said. “But we can’t say when is the trigger point.”
The export outlook is better than expected and the central bank hasn’t yet seen the impact from rising global trade protectionism, Mr Jaturong said. The baht was among the worst performing Asian currencies in the past three months, dropping about 4% against the dollar.
Neighbours like Indonesia and Malaysia have tightened policy this year while in the Philippines, the central bank is poised to deliver on its pledge for strong action on Thursday.
Bandid Nijathaworn, a former deputy governor at the Bank of Thailand, said real interest rates of about zero may be “too low” for an economy growing more than 4%. Policy makers need to “pre-empt inflation risk” by acting sooner rather than later on rates, he said in an interview on Tuesday.
Inflation in Thailand is slowly rebounding and has returned to the central bank’s target range of 1% to 4% since April. Economic growth was at a five-year high of 4.8% in the first quarter.
Signals from Thai central bankers of late have increasingly shown that they’re thinking about how to respond to a pick-up in economic growth and inflation -- and create more room for themselves for when conditions warrant policy action in the opposite direction.
“An early start to policy normalization would signal the BoT’s confidence in Thailand’s economic and inflation prospects,” said Sarun Sunansathaporn, an economist at Bangkok-based Bank of Ayudhya. “We maintain the view that the BoT would raise rates once in the fourth quarter, consistent with the current state of the domestic economy.”
Solid Growth
Gross domestic product growth reached a five-year high of 4.8% in the first quarter, with that healthy momentum probably sustained in the second quarter on the back of a strong performance in exports, tourism and recovering private demand.
Don Nakornthab, the central bank’s senior director in charge of the economic and policy department, said on July 13 that growth of 4.5% or more in the second quarter could boost the odds of a rate increase.
The bank in June raised its 2018 growth forecast to 4.4% from 4.1%.
Bandid Nijathaworn, a former deputy governor at the central bank, said real interest rates of about zero may be “too low” for an economy growing more than 4%. Policy makers need to “pre-empt inflation risk” by acting sooner rather than later on rates, he said in an interview on Tuesday.
Baht Weakness
The baht has slid 4.2% against the dollar in the past three months, the worst performer in Asia after China’s yuan, taking its decline since the beginning of the year to 2%. Governor Veerathai Santiprabhob said on July 12 the central bank tries to curb excessive moves in the currency and its accumulated foreign-exchange reserves in the past few years that it can now use in periods of global volatility.