The Bank of Thailand (BoT) left its policy rate unchanged as expected yesterday but said that the necessity of accommodative monetary policy is subsiding, adding to signs that a shift to a neutral stance is just around the corner.
"Over the last two meetings [June 20 and yesterday], the committee regarded the need for accommodative policy as declining because of the broader-based economic recovery, but we can't tell when will be the trigger point," said Jaturong Jantarangs, assistant governor and secretary of the Monetary Policy Committee (MPC).
The rate-setting MPC yesterday voted 6 to 1 to keep the policy rate on hold at 1.5%, where it has stood since a 25-basis-point cut in April 2015.
One member voted to raise the policy rate by a quarter percentage point to 1.75%, saying the economic expansion was sufficiently robust and the prolonged monetary accommodation might induce households and businesses to underestimate potential changes in financial conditions.
The MPC's minutes for its meeting on June 20 showed that the members discussed the rate-hike path. Thailand is among the few countries still shrugging off monetary normalisation, though some Asean central banks have already synchronised their monetary policies with the US Federal Reserve.
The Thai economy continues to gain further traction, driven by both domestic and external demand, Mr Jaturong said after yesterday's meeting.
In the MPC's assessment, headline inflation is projected to increase broadly in line with the previous assessment, while core inflation is expected to rise slowly. Overall financial conditions remain accommodative and conducive to economic growth. Financial stability remains sound overall.
The committee is monitoring the readiness of both household and business sectors for the interest rate hike, Mr Jaturong said, adding that low-income households are the focus because they would feel a greater impact from a rate hike than middle- to upper-income households, given their high debt.
He said domestic purchasing power has continued to improve after the extended period of accommodative policy, while household purchasing power is better than in the past nine months when low-income earners did not benefit from the country's economic recovery.
Merchandise exports are expected to achieve higher growth than previously assessed, partly due to the relocation of production bases to Thailand for some industries.
But the tourism sector is projected to achieve lower growth than earlier seen after the Phuket boat tragedy in July. The incident will affect Chinese visitors only, Mr Jaturong said, noting that the central bank needs to monitor the situation before reaching a conclusion about the impact.
The number of Chinese tourists travelling to Thailand is expected to drop by 5-8% this month in the wake of last month's accident. As many as 600,000 Chinese tourists cancelled trips to Thailand last month, representing 37 billion baht in revenue lost, according to the Tourism and Sports Ministry.
Regarding the floods, Mr Jaturong said the situation is limited to three provinces -- Phetchaburi, Nakhon Phanom and Sakon Nakhon -- and the floods will have an insignificant impact on rice because the growing season has just started.
"Looking ahead, the Thai economy as a whole is projected to continue to gain further traction, driven by both external and domestic factors," the MPC's statement said. "However, there remains the need to monitor the strength of the domestic demand, inflation developments and financial stability risks in the period ahead, as well as impacts of trade protectionism measures and risks of lower-than-expected growth in the tourism sector."
Amonthep Chawla, head of research at CIMB Thai Bank (CIMBT), forecasts that the central bank will start normalising early next year because the economic rebound remains uneven and rising prices are driven by cost-push inflation, not demand pull.
But Standard Chartered Bank Thai economist Tim Leelahaphan said in a note that he will maintain his non-consensus call of one 25-basis-point hike in September and another in the final quarter.
"We think the second-quarter economic performance will support our call, provided that overall economic activity over the period continues to gain traction from all components, especially private consumption and investment," he said.