Steady monetary policy appropriate, BoT says

The Bank of Thailand identifies improving growth outlook and increased financial stability risks from a further rate cut as key reasons for the bank to hold policy steady. (Reuters photo)

The improving growth outlook and increased financial stability risks from a further rate cut were key reasons for the central bank’s decision to hold the policy interest rate steady this month, minutes from the meeting show.

The Bank of Thailand’s Monetary Policy Committee unanimously voted to keep the one-day repurchase rate at 1.50% on Aug 16, where it has been since April 2015, and just 25 basis points above the all-time low. 

The committee expected growth outlook to improve further on a boost from exports and tourism, with domestic demand to expand at a gradual pace, the  released on Wednesday show.

“The committee viewed the effect of a policy rate cut to foster a swifter return of inflation to target would be limited.

“This was because the decline in inflation was attributed mainly to supply-side factors and might partly be a result of structural factors,” the minutes said.

“At the same time, a policy rate cut at the current juncture might exacerbate financial stability risks given the prolonged low interest rate environment.”

Headline inflation was projected to rise but at a slightly slower pace than previously assessed, mainly because of supply-side factors due to falling prices of fresh food, and last year’s high base-effect because of drought.

Annual headline inflation was just 0.17% in July and the central bank forecast it will be 0.8% this year, below its target range of 1-4%.

The committee felt the strong appreciation of the baht relative to regional currencies might affect business investment, and would continue to closely monitor developments.

The baht has appreciated 7.9% against the US dollar this year, making it Asia’s best performing currency.

The committee next reviews policy on Sept 27. Most economists expect no policy change this year, but some analysts are picking another rate cut.

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