Photographer: Taylor Weidman/Bloomberg

Thailand Growth Rebound Has Room to Run, Central Bank Chief Says

  • Export momentum spreading across the economy to smaller firms
  • Veerathai expects investment to curb current account surplus

Thailand’s already “very accommodative” monetary policy is fueling robust growth that’s spreading across the economy, said Bank of Thailand Governor Veerathai Santiprabhob.

Veerathai Santiprabhob

Photographer: Brent Lewin/Bloomberg

The outlook comes as an exports revival in Thailand gains momentum despite a recent rise in the nation’s currency, the baht. Better demand from key trading partners is helping to offset strength in the exchange rate, Veerathai said. At the same time, headline inflation is likely to accelerate towards the central bank’s target range, underscoring the effectiveness of the monetary authority’s inflation targeting regime, he said.

“We have seen increasing confidence in the recovery of the Thai economy and improving investor confidence,” Veerathai said in an interview in Washington on Friday, noting flows from overseas into the nation’s stocks and bonds. “The monetary policy committee believes that current monetary conditions are very accommodative.”

Challenges include a swelling current account surplus that’s helped fuel foreign inflows, driving the baht up more than 8 percent against the dollar this year -- the best performer in Asia. The central bank chief expects that surplus to fall as public and private investment pick up. While excessive speculation is unwelcome, he stressed that the currency is floating.

“Our concerns are about the pace of the change; we don’t target certain levels of the exchange rate,” he said. “We would not want to see our currency moving out of sync with our regional trading partners.”

Thailand’s central bank has kept its benchmark interest rate unchanged at 1.5 percent since 2015, rebuffing calls from the International Monetary Fund and the government to ease policy to spur economic growth. The Finance Ministry has recently stepped up pressure on the central bank to cut rates as the baht continues to strengthen and as inflation remains subdued. 

The Bank of Thailand has argued that a rate cut may increase financial stability risks, a point that Veerathai reaffirmed in the interview.

The policy maker is also having to fend off claims of currency manipulation as it boosts foreign-exchange reserves close to a record. President Donald Trump’s executive order to probe 16 countries that run the largest bilateral trade deficits with the U.S. poses a risk for export-dependent Thailand and complicates the central bank’s currency policy.

Inflation was 0.9 percent in September, below the central bank’s target band of 1 percent to 4 percent. It forecasts inflation of 0.6 percent this year and 1.2 percent for 2018. GDP growth is seen at 3.8 percent for this year and next. 

Structural changes such as technology advances and the greater use of e-commerce are helping to keep prices lower, though by how much isn’t clear, Veerathai said. For now at least, the bank’s inflation regime remains appropriate, he said.

“What would be a better monetary policy framework for small open economies?” he said. “There are a lot of proposals out there for alternatives, but I think there is no accepted decision as to which framework would be better.”

— With assistance by Nasreen Seria

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