1-day RP rate unchanged

"We are not ready to send a signal that the policy interest rate has already bottomed out or whether it will be raised," said Paiboon Kittisrikangwan, an assistant central bank governor.

The global economy remains the first risk factor for the domestic economy that the Monetary Policy Committee (MPC) takes into consideration, followed by the political situation.

Influenza A (H1N1) is the latest one, which could dampen tourism and domestic demand.

The MPC, however, was relieved that the global as well as domestic economic outlook has improved, without inflationary pressure.

The global economy and financial markets have rebounded, thanks to expansionary fiscal and monetary policies, but the comeback has been fragile, which could put additional pressure on the country's exports, the MPC said.

The central bank must ensure that the global economy has already turned the corner, and not just slowed its fall. Clear signs of economic momentum are needed.

"Global economic stability has been evident, but we have to monitor whether it is sustainable," Paiboon said.

He declined to disclose whether the central bank has revised upward its economic projection for this year from the current forecast of a contraction of 1.5-3.5 per cent.

The committee, however, anticipated a more positive outlook for the economy as long as the global economic recovery and fiscal stimulus policy stay on track.

The MPC also expressed concern over the political situation, which could delay government spending.

"Loss of confidence will have an impact on the economy, which would negatively affect budget disbursement for investment projects," he said.

The flu outbreak was a risk factor for the economy although its actual impact was currently unpredictable.

It would worsen tourism, causing lower tourism income. It would have an adverse impact on domestic consumption, triggering second and thirdround effects.

People could reduce their consumption by hesitating to go out shopping.

"The impact depends on the magnitude of the problem and concerns of people. We have to monitor its impact," he said.

The central bank insisted that it was not worried about the current deflationary trend because it was caused by the government's five measures to lower the cost of living.

Inflation, excluding the measures, was actually positive, but still remained within the MPC's target range. This partly convinced the MPC to hold the key interest rate steady.

The central bank admitted that its monetary policy was losing efficiency while the key interest rate approached zero. Commercial banks have gradually reduced both deposit and loan interest rates.

The government's issuing of savings bonds would not greatly drain off the excess liquidity in the system because the government would eventually inject money back into the economy, he added.