Thailand Keeps Interest Rate Unchanged as Fed Increase Looms

Updated on
  • Bank of Thailand says policy to remain accommodative
  • Baht fell after gaining the previous day as key rate held

Thailand’s central bank kept its key interest rate unchanged for the fifth straight meeting, holding fire before a widely anticipated U.S. Federal Reserve rate increase as it leans on government stimulus spending to revive local demand.

The Bank of Thailand held its one-day bond repurchase rate at 1.5 percent, with monetary policy committee members voting unanimously in favor, it said in Bangkok on Wednesday. Twenty-two economists surveyed by Bloomberg News predicted the decision, while one forecast a quarter-of-a-percentage-point cut.

Thailand’s military government has poured money into rural areas and small businesses to prevent the economy from worsening, and this week announced plans for a $2.8 billion fund that will provide incentives to investors in key industries. Global funds have pulled a net $4.3 billion from Thai stocks and bonds this year as the prospect of a U.S. rate increase sapped demand for emerging-market assets.

“The window for Thai rate cuts has already closed given the expected Fed rate hike,” said Tim Leelahaphan, an economist at Maybank Kim Eng Securities Thailand Pcl, referring to the Fed’s decision later on Wednesday. “Government spending is a more effective tool to boost growth than lower interest rates.”

Signs of Improvement

Thai economic indicators have shown signs of improvement in recent months, reducing pressure on the central bank to cut borrowing costs further. Consumer confidence rose for a second straight month in November as oil prices declined and the government accelerated its stimulus spending plan. Governor Veerathai Santiprabhob has said that monetary policy will play a supportive role until the economy starts to see the full benefit of state stimulus next year.

“The continued economic recovery is the key reason for today’s decision,” Assistant Governor Jaturong Jantarangs said Wednesday at a media briefing in Bangkok. The central bank expects economic growth this year to be slightly better than expected on private consumption and government stimulus measures, while the expansion next year is expected to be in line with its earlier forecast, Jaturong said.

The central bank in September forecast growth of 2.7 percent this year and 3.7 percent next year. The next revision is due on Dec. 25.

The baht dropped 0.4 percent to 36.06 per dollar as of 4:20 p.m. in Bangkok, after rising 0.7 percent Tuesday, according to data compiled by Bloomberg. It has lost 8.8 percent this year, the third-worst performance in Asia after the Malaysian ringgit and Indonesia’s rupiah.

Fed Impact

While there may be some impact from a Fed rate increase, Thailand can cope, Jaturong said, citing the country’s high reserves and low foreign debt.

“The central bank is ready to use available tools to support economic recovery along with keeping financial stability,” Jaturong said. “Given the amount of time we used to discuss both growth and monetary stability in the meeting, the MPC members gave more weight on economic growth.”

The baht and financial conditions support an economic recovery, the central bank said. The Bank of Thailand’s policy will remain accommodative, and while inflation pressures have eased on lower oil prices, the inflation rate should turn positive in the first half of next year, it said.

“The incentive for monetary easing has eased with fiscal spending gaining traction and domestic activity stabilizing," said Weiwen Ng, a Singapore-based economist at Australia & New Zealand Banking Group Ltd. “Bank of Thailand is likely to undertake a neutral stance and remain on a protracted hold."

— With assistance by Margo Towie, Michael J Munoz, Yumi Teso, and Sharon Chen

(Updates with central bank comment in sixth paragraph.)
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