“It’s still accommodative but it doesn’t indicate that the MPC will have to lower more or to raise it very soon,” Suchada, who is a member of the seven-person monetary policy committee at the central bank, said in an interview today at her office in Bangkok. “If it’s accommodative, it can be maintained at the same level for a certain period.”
Southeast Asia’s second-largest economy has “bottomed out” and is on a path to recovery, the finance ministry said this week, as the decline in manufacturing eased after floods swamped thousands of factories and killed more than 700 people in 2011. Growth has been hampered by Europe’s debt crisis, which hurt demand for Asian exports from Singapore to Taiwan, prompting Thailand to cut rates in the past two meetings.
“They could possibly wait and not do anything else for now” given recent positive economic data, said Gundy Cahyadi, an economist at Oversea-Chinese Banking Corp. in Singapore. Still, “one more 25 basis-point cut shouldn’t be ruled out going forward,” Cahyadi said.
Before the floods hurt growth, the central bank had resisted easing policy even as Prime Minister Yingluck Shinawatra’s administration urged the monetary authority to cut borrowing costs.
Concern the government would undermine the Bank of Thailand’s independence resurfaced with a proposal late last year to transfer the finance ministry’s more than $30 billion of legacy debt from bank bailouts to the central bank. The plan was later scrapped, and instead Thailand will tap commercial bank fees and central bank profits for the debt payments while keeping the principal on the finance ministry’s books.
Suchada said today the central bank has independence in its operations and each monetary policy member has their own view. She added that the government “did listen” to Governor Prasarn Trairatvorakul when he explained the central bank’s limitations with regards to the proposal to shift responsibility for the debt, and the current plan is “acceptable” as it doesn’t involve foreign reserves or prompt the central bank to print money.
One-year onshore interest-rate swaps, the fixed cost needed to receive a floating payment, has risen six basis points, or 0.06 percentage point, to 2.98 percent since the central bank’s last meeting on Jan. 25. The three-year government bond yield has climbed 24 basis points to 3.24 percent during the period.
The baht has strengthened more than 4 percent against the U.S. dollar this year, the third-best performance among Asia’s currencies. The currency advanced 1.3 percent last week, the most since the period ended Dec. 2. The benchmark SET Index of stocks has risen 13 percent this year.
The central bank may raise its 2012 economic growth forecast to 6 percent, from an earlier prediction of 4.9 percent, after a slower-than-expected expansion last year, Suchada said. Policy makers will discuss the new target at a meeting scheduled for March 21, she said.
The monetary authority will also ease rules on fund inflows and outflows later this year, she said. The central bank is conducting a number of hearings on its capital liberalization plan, including allowing non-residents to lend more baht to local financial institutions and encouraging more Thai direct investment and portfolio investment overseas, the deputy governor said.
The first phase of the plan should be implemented within this year, and in a later phase, the bank will ease restrictions on the flow of capital to help Thailand better benefit from the linkages brought about by a Southeast Asian economic community initiative, she said.
The central bank cut the one-day bond repurchase rate by a quarter of a percentage point to 3 percent in its last meeting on Jan. 25, judging that threats to growth were greater than the risk of inflation.
Gross domestic product shrank 9 percent in the fourth quarter from a year earlier, the biggest decline since 1998, during the Asian financial crisis. Last year’s floods, the worst in almost 70 years, disrupted output by manufacturers from Western Digital Corp. to Honda Motor Co. and slowed annual growth to 0.1 percent in 2011.
Among signs of improvement, industrial output fell the least in four months in January as companies resumed operations and supply-chain disruptions eased after the deluge, a report showed this week. Exports rose 1.2 percent from a year earlier, the finance ministry said, citing preliminary data from the Customs Department.
Rising oil prices have revived risks to inflation, which slowed to a 10-month low of 3.38 percent in January.
“Risks to inflation have been rising because of tension in the Middle East,” Suchada said. “It’s still within our expectation. Risks on growth may improve a little bit from the last MPC meeting, but we are not confident yet until Europe has a clear solution.”
The baht strengthened 0.3 percent to 30.27 per dollar as of 4:50 p.m. in Bangkok and touched 30.21 earlier, the strongest since September, according to data compiled by Bloomberg.
The Bank of Thailand will let the market decide the exchange-rate, and step in when needed, Suchada said.
“Sometimes when there is excessive volatility, we could step in,” she said, adding the bank intervened “a little bit” last week.