Thailand Holds Rate as Fed Hike Pressures Asian Currencies

  • Central bank keeps rate at near record-low 1.5% as expected
  • Currency is among the biggest losers in Asia this month

Thailand held its key interest rate near a record low for a 13th straight meeting, opting for stability as the prospect of higher U.S. borrowing costs weighs on Asian currencies and clouds the outlook for growth.

The Bank of Thailand kept its one-day bond repurchase rate at 1.5 percent, with monetary policy committee members voting unanimously in favor, the central bank said in Bangkok on Wednesday. All but one of 25 economists surveyed by Bloomberg predicted the decision.

Emerging nations are contending with capital outflows after the Federal Reserve last week raised rates by a quarter-point and signaled three more increases may be warranted in 2017. A yearlong mourning period for King Bhumibol Adulyadej and the prospect of a protectionist tilt in the U.S. pose risks to the export-reliant economy, which is growing at the slowest pace among peers in Southeast Asia.

“The BoT will want to keep interest rates low to support the economy, which looks to have started the fourth quarter on a softer note,” Krystal Tan, an economist at Capital Economics Ltd. in Singapore, said in a note. “With inflation set to remain benign, we expect the BoT to stay on the sidelines and keep its policy rate on hold” throughout 2017.

Biggest Loser

The SET index was little changed as of 2:10 p.m. in Bangkok, while the baht was up 0.1 percent to 35.99 per dollar. The baht has been among the biggest losers in Asia in the past month, dropping 1.4 percent against the dollar.

Thailand’s economy struggled to gain traction this year as moderating consumer spending and a slump in trade curbed investment. Growth weakened to 3.2 percent from a year ago last quarter. Consumer prices rose 0.6 percent in November from a year earlier.

The central bank said it “assessed that the Thai economy would still be facing greater uncertainties going forward, particularly the fragile global economic recovery and uncertainties in the economic and monetary policy directions of major advanced economies that might induce greater capital flow and exchange rate volatility.”

Policy makers retained their 3.2 percent growth forecasts for 2016 and 2017 and predicted exports will stop falling next year. Inflation is projected to return to the 1 percent to 4 percent target by the first quarter.

“Unless domestic demand in Thailand falters and inflation eases, we do not foresee a rate cut,” Tim Leelahaphan, a Bangkok-based economist at Maybank Kim Eng Securities Thailand Pcl, said before the decision. “More likely, rates have upside risk to stem portfolio capital outflows caused by any Fed monetary tightening.”

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