Uncertainty about the Thai economy has increased significantly, primarily due to the unclear impact of possible US economic policies, minutes of the most recent Bank of Thailand policy meeting showed on Thursday.
Policymakers also expressed concern that the role of exports as a key driver of the Thai economy is likely to diminish over the longer term.
At the meeting on Dec 18, the central bank’s Monetary Policy Committee (MPC) voted unanimously to leave the one-day repurchase rate unchanged at 2.25%, after a surprise cut at the previous review in October.
The decision had been widely expected, despite continuous lobbying by the Pheu Thai-led government for lower rates to stimulate the economy.
The MPC deemed it appropriate to hold steady given the heightened economic uncertainties, the minutes said.
“Maintaining sufficient monetary policy space to respond appropriately at the right time was deemed essential to maximise the effectiveness of monetary policy,” the minutes said.
“Going forward, the Thai economy faces heightened uncertainties, primarily due to US economic policies. The precise details of these policies, including structure, intensity, implementation timeline, and potential retaliatory measures by other countries, remains unclear.”
In the short term, the central bank said, Thai merchandise exports could experience a temporary acceleration as exporters adjust ahead of policy changes. “Over the medium term, however, the net impact on Thai exports and investments remains uncertain, contingent on the feasibility of relocating production bases and Thailand’s trade competitiveness in comparison with China in both domestic and regional markets.”
It also warned that in the longer term, “the contribution of exports as a key driver of the Thai economy is likely to diminish relative to historical trends”.
“This is attributed to a decline in the value-added content of certain export categories, such as metals, rubber, plastics and petroleum products, as well as a structural transition away from high value-added exports, such as internal combustion engine vehicles — which are distinguished by substantial local content and strong linkages to domestic industries — toward lower value-added products, such as electronics and machinery, which are more reliant on imported raw materials and components.”
The central bank maintained its forecast for economic growth of 2.7% in 2024 and 2.9% in 2025, and the minutes showed committee members felt the overall economy was expanding despite a decline in credit growth.
The committee said it was crucial to monitor credit quality and credit growth developments among sectors where recovery was slow, as well as for the impact on the broader economy.
The central bank expects headline inflation of 1.1% in 2025, near the bottom of its 1-3% target range, and said medium-term inflation expectations were within the target range.
The next MPC meeting is scheduled for Feb 26.
