Thailand Holds Policy Rate Even as Kittiratt Pushes for Cut

Thailand’s central bank held its interest rate for a fourth straight meeting and said it would be vigilant about asset-price risks, even as it resisted the government’s calls for monetary easing. Stocks fell.

The Bank of Thailand kept its one-day bond repurchase rate unchanged at 2.75 percent, with the monetary policy committee voting five to one to hold, it said in Bangkok today. One member voted for a quarter of a percentage-point cut. Twenty of 21 economists in a Bloomberg survey predicted today’s decision, while one called for a quarter-point reduction.

The central bank has rebuffed repeated calls by Finance Minister Kittiratt Na-Ranong for lower borrowing costs, as it grapples with rising inflows that have stoked credit growth and asset prices, and last month boosted the baht to its strongest level in almost 16 years. Fitch Ratings raised its assessment of Thailand last month, citing a resilient economy and a more stable political climate.

“With concerns about credit growth and the long-term inflation outlook, it’s quite difficult for the central bank to cut rates despite government pressure,” said Tohru Nishihama, an economist covering emerging markets at Dai-ichi Life Research Institute Inc. in Tokyo. “The economy is in a good condition,” he said, adding that while policy makers may be concerned about the baht’s gains, they may use other measures to control it.

The Stock Exchange of Thailand index fell 1.9 percent at the close, led by property stocks, on concerns that the central bank may unveil measures to curb mortgage lending, said Narumon Ekasamut, an analyst at Bualuang Securities Pcl in Bangkok. The baht rose 0.2 percent to 29.37 per dollar. It is the biggest gainer this year among 11 Asian currencies tracked by Bloomberg.

Asset Prices

The central bank said today it will raise its gross domestic product estimate for a second time this year from 4.9 percent earlier, after faster-than-estimated expansion in the fourth quarter. Exports should expand slowly, the monetary authority said, while upward price pressure warrants monitoring.

The central bank said it will monitor foreign-exchange and capital flows, and that it is still concerned about high credit growth and elevated asset prices.

“We need to be watchful for financial stability, which may worsen,” Assistant Governor Paiboon Kittisrikangwan told a news briefing. “Low interest rates will encourage people to invest in risky assets, which may lead to rising asset prices. We need to be vigilant,” he said, adding that the central bank has already factored in the impact of a strong baht on the economy.

Arbitrage Room

The finance ministry last week raised its GDP forecast for this year to 5.3 percent from 5 percent. Kittiratt said today he isn’t comfortable with the level of the policy rate, without saying what it should be.

“I don’t think it has to be that high,” Kittiratt said in an interview in Bandar Seri Begawan, Brunei before the decision. “It has opened up some room for arbitrage.”

Prime Minister Yingluck Shinawatra has boosted the minimum wage and handed tax incentives to first-time car buyers as she sought to spur economic growth after the 2011 floods. Automakers Nissan Motor Co. and Toyota Motor Corp. have stepped up production in Thailand as local sales rose to a record last year.

Demand for personal loans jumped 22 percent in 2012, the biggest increase in seven years, adding debt risks that threaten to heighten the economy’s vulnerability to a slowdown. Thai exports fell for the first time in six months in February, while consumer prices rose 2.69 percent in March from a year earlier, slowing from a 3.23 percent pace the previous month.

The central bank remains “cautious about risks to domestic financial stability, and “despite the tension between the central bank and the ministry of finance, we expect the rate will be held amid the strong growth prospects,” said Jackit Wong, a regional economist in Hong Kong at Natixis Asia Ltd.

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