Thailand Holds Key Rate as Stimulus Boosts Growth Outlook

  • World Bank forecasts economic growth to rebound in 2017, 2018
  • Government in January approved a new round of fiscal stimulus

Thailand kept its key interest rate unchanged for a sixth straight meeting as the government ramps up spending to help shield the nation from weak global demand.

The Bank of Thailand held its one-day bond repurchase rate at 1.5 percent, with committee members voting unanimously in favor, it said in Bangkok on Wednesday. All 23 economists surveyed by Bloomberg News predicted the decision.

Prime Minister Prayuth Chan-Ocha approved in January a plan to spend 35 billion baht ($980 million) on infrastructure in villages as the government’s latest stimulus measure. The World Bank forecast last month economic growth will weaken to 2 percent this year before rebounding in 2017 and 2018, as China’s slowdown hurts the global economy.

"Bank of Thailand may stand pat at this low level through the third quarter of this year," said Nitipong Taweesith, a Bangkok-based market analyst at Bank of Ayudhya Pcl. "There will be recovery in domestic demand driven by government spending."

Preserving Firepower

The central bank wants to preserve its firepower as external risks increase, Assistant Governor Jaturong Jantarangs said at a briefing. Bank of Japan last week announced it will adopt negative interest rates on some deposits, joining global peers in an effort to bolster growth.

"The committee wants to preserve policy space in case the economy fails to meet expectations going forward," he said. "If that happens, we will have room to exercise in monetary policy unlike other countries."

While consumer prices fell a 13th straight month in January, the central bank expects inflation to turn positive in the first half of 2016. Cutting rates too much too quickly would raise market volatility and put long-term financial stability at risk, it said last month. Policy makers forecast growth of 3.5 percent this year.

“Additional fiscal measures and public investment should help support the economic recovery," Nalin Chutchotitham, a Bangkok-based economist at HSBC Holdings Plc, said before the decision. The central bank will likely stay on hold "as long as inflation expectations and core inflation stay relatively stable".

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