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Policy rate

Economists expect no change in rate this year

Economists expect the policy rate to remain unchanged until next year, given weak inflationary pressure.

"We expect the MPC (Monetary Policy Committee) to keep the policy rate on hold at 2 per cent until the first quarter of 2015, in order to sustain the

economic recovery," said Nalin Chutchotitham, economist of HSBC Bangkok Branch. Low pressure from inflation, expected to be below 2.6 per cent this year and next year, means the MPC may not come under pressure to start hiking rates any time soon.

In its statement yesterday, the MPC stated that "the policy stance is deemed consistent with long-term financial stability, which should complement government's reform efforts to lift the economy's potential growth." To Nalin, this indicated that the MPC does not think that its low policy rate would lead to an increase in financial instability and is ready to keep rates on hold to support growth, particularly through keeping borrowing costs low for private and public investment.

HSBC Bangkok expects this year’s economic growth to be 1.4 per cent.

Gundy Cahyadi, DBS economist, said that the rate should stay unchanged through the rest of the year and probably until mid-2015.

"The economy might have just avoided slipping into a technical recession in the second quarter. But the outlook is still far from being robust. So there will be no rush for a rate hike," he said.

DBS expected Thailand's growth momentum to pick up late 2014, but but a return to near-term potential will still take some time, even if the government is going to be clearly pro-growth going forward. At the same time, another rate cut is unlikely to be much of use to boost economic growth.

Siam Commercial Bank’s Economic Information Centre also believed that that the policy rate would remain on hold throughout this year, citing the fragile economic recovery still needs monetary supports.

Yet, it viewed that the Bank of Thailand would come under greater pressure from the shirt of capital movement, which may force other regional banks to raise the policy rates. Financial stability will be in focus, it said, and this means the policy rate should rise next year.


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