Thailand Holds Rate a Fourth Time as State Spending Boosted

Thailand kept its key interest rate unchanged for a fourth straight meeting to support the economy as Prime Minister Prayuth Chan-Ocha’s newly appointed cabinet increases spending to spur growth.

The Bank of Thailand held its one-day bond repurchase rate at 2 percent, with monetary policy committee members voting 5-0 in favor, it said in Bangkok today. All 21 economists in a Bloomberg News survey predicted the decision, which extends a pause since March.

The parliament yesterday approved a budget proposal of 2.58 trillion baht ($80 billion) for fiscal year 2015, and Prayuth has ordered state agencies to frontload spending from the first quarter to boost local demand. Finance Minister Sommai Phasee said this week monetary policy is “quite balanced,” and that he expects to work “smoothly” with the central bank.

“The interest rate should stay at this low level for some time to help stimulate economic growth,” said Adithep Vanabriksha, Bangkok-based chief investment officer at Aberdeen Asset Management Plc. “The economy will certainly rebound in the second half and through 2015,” he said, even as the outlook remains unclear because it’s uncertain how the government’s policies will materialize.

The baht slipped 0.1 percent to 32.230 against the U.S. dollar as of 2:53 p.m. local time. It has strengthened about 1.5 percent so far this year, among the best performers in Asia of 11 currencies tracked by Bloomberg. The benchmark SET Index gained 0.2 percent.

Accommodative Policy

Thailand avoided a technical recession last quarter after gross domestic product grew 0.9 percent from the previous three months when it shrank 1.9 percent. The state planning agency forecasts full-year growth at 1.5 percent to 2 percent.

Consumer confidence climbed to the highest in a year in August, and Sommai has said the finance ministry will introduce new instruments for infrastructure projects. Global funds have bought a net $5.04 billion of Thai bonds and equities in the quarter to date, according to data compiled by Bloomberg.

The monetary authority’s action today is in contrast to policy tightening elsewhere in the region: the Philippines raised its benchmark rate for a second meeting earlier this month, while Malaysia increased borrowing costs in July.

“The accommodative monetary policy is still needed, given the early stage of the economic recovery,” Thai Assistant Governor Mathee Supapongse told reporters in Bangkok today. “It doesn’t pose risks to financial stability,” he said, adding that the central bank still expects a “V-shaped recovery” from the second quarter.

Too much economic stimulus isn’t sustainable, Mathee said, adding that the central bank will release its revised growth forecasts on Sept. 26.

Prayuth took the post of prime minister last month after he was appointed by his hand-picked legislature, more than half of them from the military. Prayuth has said elections will be held no earlier than late-2015, after the junta and its appointed bodies write a new constitution and enact measures to “reform” Thai politics and society.

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