The Bank of Thailand left its key interest rate unchanged for a fourth straight meeting on Wednesday, as widely expected, despite repeated calls by the government to lower borrowing costs to help revive the economy.
The central bank’s Monetary Policy Committee voted 6-1 to hold the one-day repurchase rate at 2.50%, the highest in more than a decade. At the last meeting on April 10, the vote was 5-2 in favour of leaving the rate unchanged.
All but three of 27 economists in a Reuters poll had expected no change in the benchmark rate this week. Three economists had predicted a quarter-point cut.
The government has repeatedly called for a rate cut to revive the economy, which has lagged regional peers for most of the past decade and is on course for another sub-par year.
Among the 26 economists who provided a rate outlook until the end of 2024, 15 saw them at 2.25% or lower by the year’s end, while 11 predicted them to remain steady at 2.50%.
In a statement released after the meeting, the committee said the economy continues to expand, driven mainly by domestic demand and tourism. Export growth remains subdued as some Thai goods face additional pressures from higher competition.
“The majority of the committee deems that the current policy interest rate is consistent with the economy converging to its potential, as well as conducive to safeguarding macro-financial stability,” said the statement.
“One member voted to cut the policy rate by 0.25 percentage points to reflect Thailand’s lower potential growth as a result of structural challenges, and to partly alleviate the debt-servicing burden for borrowers.”
The central bank expects the economy to expand by 2.6% this year and 3% in 2025. Growth would be driven by stronger-than-expected domestic demand in the first quarter, a continued recovery in tourism, and acceleration in government disbursement during the second quarter.
“Going forward, uncertainties surrounding exports and manufacturing recovery as well as the impact from government stimulus measures should be monitored in the second half of the year,” the statement added.
Committee members also expressed concerns over the high level of household debt, and said credit growth “should be consistent with the ongoing debt deleveraging to foster long-term financial stability”.
The Bank of Thailand has maintained that lower interest rates will do little to improve an economy that needs deep structural reforms. It has also expressed concern about the risk of inflation starting to rise again after months of benign readings.
The statement said inflation is projected to gradually increase towards the central bank’s target range of 1-3% from the fourth quarter of 2024. It forecasts headline inflation will average 0.6% for the full year and 1.3% in 2025.
“Inflation has turned positive and is expected to increase, as the effects from the domestic diesel price subsidy and excess supply of certain raw food items are gradually phased out,” it said.
Figures released last week showed that the Consumer Price Index (CPI) rose in May to a 13-month high of 1.54%, with forecasts for further gains in June.
The Ministry of Commerce said the rise reflected a low base price for electricity a year earlier, higher gasoline prices and a surge in fresh food, vegetable and egg prices.
The CPI in April increased by 0.6%, the first gain after seven months of below-zero readings.
The next meeting of the MPC is scheduled for Aug 21.
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