Thailand Holds Key Rate in Rebuff to IMF Call for Easing

  • All 24 economists in survey correctly predicted decision
  • Central bank raised growth forecast this year to 3.4%

Thailand’s central bank held its key interest rate near a record low and predicted faster economic growth this year and next.

The one-day bond repurchase rate was left at 1.5 percent, with monetary policy committee members unanimously in favor, the Bank of Thailand said in Bangkok on Wednesday. All 24 economists surveyed by Bloomberg predicted the decision.

Thailand’s economic growth is lagging peers in Southeast Asia and the International Monetary Fund recommended this month that officials ease monetary policy and inject a fiscal stimulus. The central bank and the government rebuffed the suggestion, saying the current rate supports the recovery.

“The BoT will likely be content to let fiscal policy take the lead in boosting growth,” Krystal Tan, an economist at Capital Economics Ltd. in Singapore, said in a note. “The BoT will not be in any hurry to hike rates either. A large current-account surplus and healthy foreign reserves mean Thailand is well-placed to cope with any potential sell-off in emerging assets as the Federal Reserve continues to tighten monetary policy.”

Quicker Growth

The central bank raised its 2017 economic growth forecast to 3.4 percent from 3.2 percent on rising exports Policy makers predict growth will accelerate to 3.6 percent next year. The economy expanded 3.2 percent in 2016.

Exports will probably rise 2.2 percent this year from an earlier estimate of no increase, according to a statement. The central bank cut its 2017 inflation forecast to 1.2 percent from 1.5 percent.

Consumer prices rose 1.44 percent in February from a year earlier, remaining in the central bank’s target range of 1 percent to 4 percent for a third month.

Strong Baht

Thailand’s popularity among bond investors is complicating central bank Governor Veerathai Santiprabhob’s job. About $2.4 billion of foreign money has poured into the nation’s debt in 2017, bolstering the baht and complicating efforts to boost exports.

The currency has gained almost 4 percent this year versus the U.S. dollar. The strength of the baht might not be as beneficial to the economy as it could and the currency may face higher volatility due to external factors, the central bank said.

Policy makers are prepared to use an appropriate mix of tools and the monetary stance should stay accommodative, it said.

“The current policy stance is fairly accommodative and the central bank is unlikely to ease monetary policy with inflation rising,” Gundy Cahyadi, an economist at DBS Group Holdings Ltd. in Singapore, said before the decision. At the same time, “the domestic economy remains some quarters away from returning to potential growth,” he said.

    Before it's here, it's on the Bloomberg Terminal.