Thailand Holds Rate With Inflation Seen Meeting Goal in 2018

Updated on
  • All 25 economists predicted the decision to keep rate at 1.5%
  • Inflation will probably be below 1%-4% target for a third year

After years of sluggish growth, Thailand’s economy is showing signs of recovery

Photographer: Brent Lewin/Bloomberg

Thailand’s central bank kept its benchmark interest rate unchanged near a record low and said it could meet its inflation target next year.

Key Points
  • The one-day bond repurchase rate was left at 1.5 percent, with monetary policy committee members voting unanimously in favor, the Bank of Thailand said in a statement on its website on Wednesday
  • All 25 economists surveyed by Bloomberg predicted the decision
  • Headline inflation could return to the target range of 1 percent to 4 percent in mid-2018, Assistant Governor Jaturong Jantarangs said in a briefing in Bangkok
  • Economic growth will be faster than previous assessment and overall financial conditions remain accomodative, central bank said in statement
  • Exchange rates might be highly volatile due to uncertainty of U.S. economic policies and monetary policies of advanced economies
  • Financial stability remained sound but there remain pockets of risk that might lead to the build-up of vulnerabilities

The Backdrop

After years of sluggish growth, Thailand’s economy is showing signs of recovery on the back of an export boom and rising tourism. The finance ministry last month raised its economic growth forecast for 2017 to 3.8 percent, which would be the fastest pace in five years.

Consumer spending may also strengthen in the months ahead after a yearlong mourning period for King Bhumibol Adulyadej ended in October. The government on Tuesday approved tax breaks for year-end shopping and has embarked on a 1.5 trillion baht ($45 billion) plan to build infrastructure and advanced industry along the eastern seaboard.

Consumer prices rose 0.86 percent in October from a year earlier. Inflation is expected to be below the central bank’s target band of 1 percent to 4 percent for a third straight year in 2017.

The country’s military government has said elections are likely from November next year, injecting uncertainty into the outlook. While some analysts expect a growth boost, others are concerned political division could once again flare up, damaging sentiment.

Economist Takeway

  • “The BoT will be content to keep rates at their current low level over the next year or so,” Krystal Tan, Asia economist with Capital Economics Ltd., said in a note. “With the economy on a firmer footing, further rate cuts are not necessary. The BoT will be in no hurry to raise rates either. Despite the rebound in the economy, price pressures remain very low.”

— With assistance by Natnicha Chuwiruch

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