MPC keeps policy rate unchanged at 1.5%

MPC keeps policy rate unchanged at 1.5%

Panel: Economy grew faster than expected

The Bank of Thailand's Monetary Policy Committee (MPC) kept the policy interest rate unchanged yesterday as widely expected, saying the economy has grown at a faster pace than expected.

The seven-member rate-setting committee unanimously voted to leave the one-day repurchase rate unchanged at 1.5%, where it has stood since April 2015.

"The committee assessed the economy would grow at a faster clip than the previous assessment, driven by growth in merchandise exports and continued improvement in domestic demand," said Jaturong Jantarangs, assistant governor of the monetary policy group and the MPC secretary.

The MPC at September's meeting raised the economic growth forecast for both this year and next to 3.8% from 3.5% and 3.7%, respectively. It plans to review the outlook again at the next meeting slated for Dec 20.

Mr Jaturong said the MPC views the current monetary policy stance as accommodative and conducive to economic growth, which should foster the return of headline inflation to its target range, although this could take some time.

The economy gained further traction from the previous assessment because of stronger growth in merchandise exports and tourism in line with the improving global economy.

"Private consumption continued to expand, but low-income household earnings have yet to sufficiently recover," he said.

In addition, small and medium-sized enterprises (SMEs) might not fully benefit from the economic recovery, said Mr Jaturong.

He said there are a number of headwinds to economic growth in both domestic and international markets, including impacts from regulations on immigrant workers, uncertainties pertaining to US economic and foreign trade policies, and geopolitical risks.

The committee plans to continue to closely monitor exchange rates as they may become highly volatile because of US economic policies and advanced economies' monetary policies.

Mr Jaturong reiterated that financial stability remained sound but there remain pockets of risks that might pose vulnerabilities in the future such as search-for-yield behaviour and the deterioration in debt serviceability of households and SMEs.

Headline inflation slightly increased following a gradual rise in fresh food and energy prices while demand-pull inflationary pressures remained low and would be subject to structural changes that might lead to a slower pace of inflation than in the past.

He said headline inflation was projected to edge up in line with the previous assessment. The panel maintained its forecast for headline inflation to reach the lower band of the 1-4% target in the middle of next year.

In related news, Finance Minister Apisak Tantivorawong said the ministry agrees with the central bank in keeping the 1-4% inflation target band in place for next year.

"The ministry discussed the inflation target with the Bank of Thailand and we approve its proposal," said Mr Apisak.

The 1-4% inflation target band suggests policymakers are confident the economy will continue to grow at its full potential while inflation rises to the target band, he said.

Mr Apisak dismissed rumours the ministry had asked the central bank to reconsider the 1-4% target band.

"The inflation target is set for the MPC to manage in the medium to long term, and according to the agreement between the two agencies, the central bank will have to utilise all of its instruments to help the economy grow at its full potential," he said.

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