Thailand Keeps Key Rate Unchanged as Brexit Risks Dominate

  • Decision in line with all but one analyst in Bloomberg survey
  • IMF says Bank of Thailand has scope to ease monetary policy

Thailand kept its benchmark interest rate unchanged for a ninth straight meeting, opting for stability as global financial markets brace for the outcome of the U.K.’s referendum on whether to exit the European Union.

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. All but one of the 22 economists surveyed by Bloomberg News predicted the decision, with UBS AG forecasting a 25 basis-point cut.

Policy makers in the Southeast Asian nation have been reluctant to ease monetary policy despite inflation at close to zero and weak consumer spending, judging that lower interest rates would provide little support to an economy undermined by “structural” factors. The prospect of heightened market turmoil if U.K. voters elect on Thursday to leave the European Union gives the Bank of Thailand more reason to stay on hold for now.

“The committee saw merit in preserving policy space given that the Thai economy would still be facing risks going forward, such as the fragile global economic recovery, monetary policy divergence among major advanced economies, the result of the EU referendum in the U.K. (‘Brexit’) and financial stability concerns in China,” the Bank of Thailand said in a statement.

The central bank kept its economic growth forecast for this year unchanged at 3.1 percent and lowered next year’s estimate to 3.2 percent from 3.3 percent. Exports will probably contract 2.5 percent this year, worse than the 2 percent decline predicted in March, it said.

The military government led by Prime Minister Prayuth Chan-Ocha is betting on more than $18 billion in stimulus measures for farmers and small businesses to help boost local demand and offset the export slump.

Sluggish growth and low inflation means the central bank has scope to ease monetary policy, the International Monetary Fund said earlier this month. Consumer prices rose for a second month in May, by 0.46 percent.

Next year’s growth target was cut because of “rising external risks,” said Jaturong Jantarangs, an assistant governor.

“We didn’t cut the rate because growth is still in line with forecasts and inflation is moving back to the target band,” he told reporters in Bangkok.

The baht has gained 2.4 percent against the dollar and was little changed at 35.236 as of 2:50 p.m. in Bangkok.

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