BoT holds key rate, raises economic growth forecasts

BoT holds key rate, raises economic growth forecasts

Cargo ships are loaded with containers as they are docked at the Klong Toey Port. 
The Bank of Thailand expects exports to rise 9.3% this year, rather than the 8.0% increase seen in September. (Reuters photo)
Cargo ships are loaded with containers as they are docked at the Klong Toey Port. The Bank of Thailand expects exports to rise 9.3% this year, rather than the 8.0% increase seen in September. (Reuters photo)

The Bank of Thailand on Wednesday kept its benchmark interest rate unchanged near a record low in the face of subdued inflation, and raised economic growth forecasts for this year and next.

Monetary Policy Committee members voted unanimously to keep the one-day bond repurchase rate at 1.5%, where it’s been since 2015, according to a BoT statement on its website. All 21 economists surveyed by Bloomberg predicted the decision.

The country's economy is catching up with the economic boom in Southeast Asia, buoyed by a global trade recovery and supported by a flood of tourists from China. That’s being underpinned by an ambitious infrastructure spending plan, including on mass transit lines in Bangkok and a high-speed railway project with China, which the World Bank said will lead to expansionary fiscal policy well into 2022.

The government is hoping for a pick-up in investment and consumer spending to broaden the expansion in Southeast Asia’s second-largest economy, which remains export-reliant. Growth has strengthened this year despite a 9% appreciation in the baht against the dollar, among the best performers in Asia.

The BoT has fought off calls to ease monetary policy this year despite inflation remaining below the central bank’s target band of 1% to 4%. Economists at JPMorgan Chase & Co and Standard Chartered Plc predict policy makers will follow global central banks and raise interest rates next year.

“We’re not expecting BoT to follow the Fed in the immediate future,” said Edward Teather, a Singapore-based senior economist at UBS Group AG. “They have trouble raising interest rates with inflation below target and the baht pretty strong. We’ll need inflation to creep higher and the baht strength to come off a bit, and we might see that more visibly in the second half of next year.”

The central bank also raised its economic growth forecast for this year for the fourth time, to 3.9% from 3.8%.

It also lifted its 2018 projection to 3.9%, from 3.8%.

The BoT now expects exports - a key growth driver - to rise 9.3% this year, rather than the 8.0% increase seen in September.

In 2018, exports are projected to rise 4.0%, from 3.2% seen earlier.

It predicted headline inflation of 0.7% this year and 1.1% in 2018, compared with its target range of 1-4%.

The central bank said it expected inflation to return to the target band in the second quarter of 2018.

Last month, the National Economic and Social Development Board changed its 2017 economic growth projection to 3.9%, from a 3.5-4.0% range seen in August. It forecast 2018's growth at 3.6-4.6%.

In 2016, the economy grew 3.2%. When 2017 began, the central bank's projection was that growth this year would also be 3.2%.

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