The Bank of Thailand's policy rate remains unchanged at 5 per cent following a meeting of its Monetary Policy Committee yesterday.

It is the first time the committee has held the rate steady since April 20 last year, and it said it realised that the risk of economic slowdown exists alongside inflationary pressure.

BOT assistant governor Atchana Waiquamdee said headline inflation this year was likely to decline more slowly than expected, but would be under control. As a result, the real deposit interest rate - currently in negative territory at minus 0.4 per cent - is expected to enter positive territory next month.

She said the central bank's estimates of economic growth would be revised downward from the earlier forecast of 4.25 per cent to 5.25 per cent on August 28. This follows a Monetary Policy Committee (MPC) forecast that figures from the second quarter will show an economic slowdown. Atchana declined to disclose details.

However, she said that with many uncertain factors, including oil price hikes, there had been risk of economic slowdown for some time, particularly in private investment. The soaring oil prices have also dampened purchasing power, but rising farm incomes have helped keep domestic consumption growing moderately. "The slowdown in the economy will help cool down core inflationary pressures and keep it under the targeted ceiling of 3.5 per cent," Atchana said. "The current interest rate is appropriate and the business sector and consumers can adjust to it gradually."

In April last year, when the MPC last held the 14-day repurchase rate steady, there was a perception that it preferred growth over stability. The assistant governor denied that the committee focused on economic growth rather than stability. Rather, it evaluates risks to both growth and price stability, she said.

The slowdown has also lessened the second-round effect of inflation, and the outlook already takes into account the latest increases in bus fares and some products, Atchana said.

The BOT has lifted its assumption of oil prices this year to US$71 (Bt2,712) a barrel, compared to $62 in its previous forecast. Its worst-case scenario for next year sees oil peaking at $87 in the fourth quarter.

After yesterday's meeting, Industry Ministry permanent secretary Chakramon Phasukwanich said the decision to hold the policy rate had been an easy one because inflation was under control and the economy was slowing down.

The economy will show slower growth in the second quarter after recording 6-per-cent growth in the first, he said.

The MPC delivered a neutral message, saying that under internal and external uncertainty, including the volatility of oil prices, it will continue to closely monitor economic indicators involved in price stability and economic growth in order to set proper monetary policy in the future.

The committee is scheduled to meet again on September 6.

Anoma Srisukkasem

The Nation