Thailand kept its key interest rate unchanged today, pausing after a cut last month as the central bank assessed the impact of the reduction and a political deadlock on the economy.
The Bank of Thailand held its one-day bond repurchase rate at 2 percent, with monetary policy committee members voting six-to-one in favor of the decision, it said in Bangkok today. Eighteen of 19 economists in a Bloomberg News survey predicted the outcome, with one expecting a quarter percentage point cut.
The economy may contract in the first quarter from the previous three months, the central bank said today, as unrest that began late-October to unseat Prime Minister Yingluck Shinawatra persists. Governor Prasarn Trairatvorakul said earlier this month monetary policy isn’t “magic medicine” that can cure all problems and that the authority needs to be careful about cutting rates.
“Part of the reason for BOT to stay on hold this time despite downside risk to its growth projection is to send a signal that monetary policy isn’t the ideal tool for boosting growth when the slowdown comes from political unrest,” said Santitarn Sathirathai, a Singapore-based economist at Credit Suisse Group AG. “We think they want to save bullets in case there are bigger shocks in future.”
The SET Index gained 0.6 percent as of 3:53 p.m. local time. The baht slipped 0.1 percent to 32.339 against the U.S. dollar. It has weakened almost 4 percent in the past six months, among the biggest losers of Asia’s 11 most traded currencies tracked by Bloomberg.
The central bank last month cut its key rate to the lowest since Dec. 2010, and reduced its growth estimate for the year to 2.7 percent from 3 percent. Prasarn has said the monetary authority will review its forecast in June, as the fiscal budget that is scheduled to start in October may be delayed.
“Looking ahead, the prospect for economic recovery hinges importantly on the political developments,” Assistant Governor Paiboon Kittisrikangwan told reporters today. “Economic expansion this year is expected to be lower than the previous assessment, and driven mainly by exports,” he said, adding that the current monetary policy is appropriate to support growth.
Exports climbed at the fastest pace in six months in February, while the private consumption index and private investment index have both contracted since the third quarter of last year. Tourist arrivals fell 8.1 percent in February from a year earlier, and Thai Airways International Pcl said this week it will miss its first-quarter profit estimate.
The outlook on Thailand’s debt rating may be reassessed if the deadlock stretches into the second half, Fitch Ratings said March 20. Finance Minister Kittiratt Na-Ranong said today Moody’s Investors Service won’t cut its outlook for the country’s debt rating now because of the strong fundamentals.
Thailand’s revenue collection may miss the target for this fiscal year, Kittiratt also said today. Almost all tax types have come in lower in the first six months because of the slowing economy, he said, adding that it is “concerning.”