Bank of Thailand maintains policy rate at 2.5%
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Bank of Thailand maintains policy rate at 2.5%

Bank encouraged by positive trends

The Bank of Thailand has resisted government pleas for a reduction of the policy rate, deciding on Wednesday to keep the rate unchanged at 2.5% for a third straight meeting, noting the Thai economy is sustaining its growth trajectory and surpassing the level of 2023.

According to Piti Disyatat, secretary of the Bank of Thailand's Monetary Policy Committee (MPC), Thai GDP is projected to grow by 2.6% this year, closely aligning with its potential growth rate.

"The central bank foresees higher GDP growth for the first quarter of this year than the fourth quarter of 2023," said Mr Piti.

"Growth is expected to improve quarter-on-quarter throughout the year."

This positive momentum should bolster Thai GDP growth next year, with the central bank projecting expansion of 3% for 2025, he said.

The National Economic and Social Development Council reported economic growth for the fourth quarter of 2023 was 1.7%, while it was 1.9% for the full year.

Buoyed by positive trends, the MPC voted 5-2 on Wednesday to maintain the policy rate at 2.5%.

Two members voted to cut the policy rate by 0.25 percentage points.

"The MPC's decision is based on the overall economy, weighing both downside and upside risks," said Mr Piti.

"The 5-2 vote reflects differing perspectives, and the prime minister may hold an alternative viewpoint."

The central bank factored in the government's recent stimulus measures, including the property incentives and the 500-billion-baht budget allocated to the digital wallet scheme, into its GDP growth assessments for 2024 and 2025.

He said growth this year will primarily be driven by two factors: tourism and private consumption.

Foreign tourist arrivals in the first three months of the year tallied roughly 10 million, in line with the central bank's projection of 35.5 million for 2024, up from 28.2 million in 2023.

Government budget disbursements for fiscal 2024, expected in the fourth quarter of this year, are expected to accelerate public expenditure, stimulating the economy from late 2024 into 2025, said Mr Piti.

"Looking ahead, there are many uncertainties related to the Thai economy, particularly regarding an export recovery, government budget disbursement, fiscal stimulus measures, and the monetary policy of major global economies," he said.

"The MPC will monitor these developments and take into account growth and inflation outlooks in deliberating monetary policy going forward."

Theerasate Prompong, an analyst at Maybank Securities Thailand, said the MPC's resolution to keep the rate unchanged aligns with the market consensus, with around 70% of analysts predicting such an outcome.

"The central bank views the current rate as conducive to sustaining economic stability and supporting monetary policy," he said, adding the stock market reacted with moderation to the move.

Though the rate was maintained, Mr Theerasate said the Thai stock market and the economy still have upside potential, supported by possible government stimulus measures in addition to the digital wallet policy, a robust export performance, and more state infrastructure projects following the approval of the fiscal 2024 budget.

The brokerage anticipates economic growth of 2.6% this year and 3% in 2025, supported by tourism growth, improving domestic consumption and a projected increase in government spending, he said.

Therdsak Thaveeteeratham, executive vice-president of Asia Plus Securities, said it would be a surprise if the MPC were to cut the rate before the Federal Reserve reduces its rate, likely to occur after June.

The Bank of Thailand maintained the policy rate to ease baht fluctuation, even though inflation has been declining for several months, said Mr Therdsak.

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