The Bank of Thailand's rate-setting panel left the policy rate unchanged Wednesday as expected, giving more weight to domestic factors and declaring that the country's external stability remains strong enough to cushion against persistent capital outflows.
The central bank also upgraded its economic growth outlook to 4.4% for 2018 and 4.2% for 2019, up from 4.1% for both years, after stronger-than-expected GDP growth in the first quarter of 4.8% — the fastest pace in five years.
The Monetary Policy Committee (MPC) voted 5 to 1 to maintain the policy rate at 1.5%, where it has stood since a 25-basis-point cut in April 2015. The current level is lower than the US Federal Reserve's key rate of 1.75-2%.
One MPC member voted to raise the policy rate by a quarter percentage point to 1.75%, arguing that the economic expansion was sufficiently robust and the implementation of monetary accommodation for an extended period might induce households and businesses to underestimate potential changes in financial conditions.
"The committee viewed that the current accommodative monetary policy stance remained conducive to the continuation of economic growth and should support the rise of headline inflation towards the target in a sustainable manner," said Jaturong Jantarangs, secretary of the MPC.
He said the MPC's members considered Thailand's foreign reserves to be at a high level, while foreign-currency-denominated debt and foreign holdings in Thai bonds and stocks remain low, thus providing safeguards at a time when foreign investors are fleeing emerging markets.
The committee will continue to monitor capital outflows, Mr Jaturong said.
Thailand is among the few countries still shrugging off normalisation of monetary policy, though some Asean central banks have already synchronised their monetary policies with the Fed's.
Malaysia's central bank emerged as the first in Southeast Asia to begin raising policy rates in January, while the Monetary Authority of Singapore started tightening in April. The Philippines and Indonesia hiked their policy rates in May.
The combination of a trade spat between the US and China, the slightly hawkish view of the Fed and the European Central Bank's decision to end its asset purchases by year-end has triggered foreigners' sell-off in Thailand and other emerging markets.
"The Thai economy as a whole continued to gain further traction, driven by merchandise exports and tourism, which continued to improve in tandem with global economic growth, and by stronger momentum from domestic demand," the MPC said. "In particular, private consumption continued to expand, although elevated household debt and the economic expansion had yet to benefit household income and employment in a broad-based manner, resulting in a gradual improvement in purchasing power."
Overall financial conditions remained accommodative and conducive to economic growth with ample liquidity in the financial system, Mr Jaturong said, noting that overall government bond yields increased somewhat compared with their position during the previous meeting, while real interest rates remained low.
Such conditions allowed financing by the private sector to continue expanding, with improvements seen in the amount of credit extended to small and medium-sized enterprises (SMEs) and consumer loans, he said.
Mr Jaturong said capital outflows have been limited to Thai bonds and equities and have not spilled over into the economic sector.
As of April, US$2.6 billion had been cashed out from Thailand.
Mr Jaturong said the MPC has focused on the mounting trade row between the world's two biggest economies.
Risk to the country's economic growth is skewed to the downside, he said, as the trade dispute between the US and its partners could take a toll on Thailand's own exports.
At Wednesday's meeting, the MPC raised its growth forecast for export value in 2018 to 9% from 7% seen three months ago and to 5% from 3.6% next year.
Kulaya Tantitemit, a spokeswoman for the Finance Ministry, rushed to soothe the market's jitters after the recent sharp slide in the Thai stock market, saying it would be a short-lived situation and would not affect the country's economy.
Thailand's economic fundamentals remain solid and the Finance Ministry's GDP growth forecast of 4.5% this year is within reach, she said.
Soraphol Tulayasathien, director of the bureau of macroeconomic policy under the Fiscal Policy Office, said the US-China disagreement is no cause for worry, given that Thailand has strong immunity with its diversified economy.
Thailand has not felt any pinch from the higher tariffs imposed by China, as those products are produced by the supply chain in the US, he said.
Moreover, tourism, which contributes a great deal of income to Thailand, is resilient amid the brewing trade war, which Mr Soraphol expects to recede after the US mid-term election in November.
He also ruled out that Thailand will fall into crisis, given its strong economic fundamentals with high foreign reserves of $212 billion, representing 3.6 times the country's short-term foreign debt.
In the meantime, Standard Chartered Bank Thai economist Tim Leelahaphan said the bank is maintaining its non-consensus call of one 25-basis-point hike in the third quarter and another in the fourth quarter.