Thailand Holds Policy Rate as Prasarn Resists Calls to Ease
Thailand’s central bank kept its benchmark interest rate unchanged for a fifth straight meeting after the economy rebounded, resisting calls from Prime Minister Yingluck Shinawatra’s government for lower borrowing costs.
The Bank of Thailand held its one-day bond repurchase rate at 3 percent, it said in Bangkok today. The decision was predicted by 18 of 21 economists in a Bloomberg News survey, while three expected a quarter-point cut. Only five members of the seven-person policy committee attended today’s meeting, with three voting to hold rates and two preferring a cut.
The central bank has refrained from adding to its November and January rate reductions as the country recovered from its worst floods in almost seven decades. Finance Minister Kittiratt Na-Ranong has urged lower borrowing costs and a weaker currency, putting Governor Prasarn Trairatvorakul in the same position as counterparts from the euro region to Japan and the U.S. in facing pressure from politicians to shore up growth.
“Thailand did benefit from reconstruction” after the floods, said Frances Cheung, a strategist at Credit Agricole CIB in Hong Kong, who predicts the policy rate will be kept stable until the end of the year. “But if the external environment continues to weaken, then some stimulus would be needed.”
The two Monetary Policy Committee members who were absent were Siri Ganjarerndee and Aswin Kongsiri, Assistant Governor Paiboon Kittisrikangwan told reporters in Bangkok. The two had “obligations abroad,” the central bank said in a statement.
The central bank said today it’s ready to adjust policy if needed. While domestic demand remains strong, exports may be weaker than expected this year, it said, adding that the current rate is appropriate for growth and inflation.
“The Monetary Policy Committee assessed that overall risks to the global economy remained elevated,” the central bank said in a statement. Still, “economic stability remained sound with further moderation in inflationary pressure and the inflation forecast remaining within the target range.”
Thai consumer prices climbed 2.69 percent in August from a year earlier, easing from a 2.73 percent pace in July. Core inflation was 1.76 percent, below the 3 percent target that the central bank seeks to avoid breaching.
“Near-term risks to Thai growth may have abated with expectation of policy easing in the U.S. and Europe,” Aninda Mitra, a Singapore-based economist at Australia & New Zealand Banking Group Ltd. (ANZ), said in a note. “However, China-related risks still remain and we continue to believe the possibility of a rate cut in Thailand’s highly open economy remains quite high.”
Thai exports fell 4.5 percent in July from a year earlier, the fifth decline this year. Southeast Asia’s second-biggest economy expanded 4.2 percent in the second quarter from a year earlier, after growing a revised 0.4 percent in the previous three months.
Bank of Thailand Chairman Virabongsa Ramangkura, who was picked by the government and doesn’t vote on policy, last month dismissed inflation-targeting as ineffective, signaling Prasarn should abandon the policy-setting measure and focus on supporting growth.
Most of the monetary committee members didn’t see a need to cut the key rate now because local demand remains strong and bank lending recorded high growth, Paiboon said.
“Cutting rates now may be less effective because private consumption and investment is already growing well,” he said. “Further monetary stimulus on local demand may have a negative impact. We have to be careful. There is also strong competition in the banking industry now and further easing may not prompt financial institutions to adjust rates.”
Still, the risks for economic growth remain high and Thailand may need to ease monetary policy further in the future, he said. Economic growth next year may be weaker than expected because of slow government budget disbursement, he said.
“There is sufficient domestic growth momentum to keep the central bank from pulling the trigger at this juncture,” Julia Goh, an economist at CIMB Investment Bank Bhd. in Kuala Lumpur, said before the decision. “The central bank has done a good job so far. They know best on how to manage the economy and further interference in monetary policy response would be detrimental to the central bank’s independence and investor confidence.”
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