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MPC holds key rate amid subdued export, tourism growth

THE BANK OF THAILAND is generally upbeat about the country's economic-recovery prospects in the second half of the year, due to firmer domestic demand and fiscal policy.

However, goods exports and tourism are expected to expand at a subdued pace, which led the Monetary Policy Committee to maintain the benchmark interest rate at 2 per cent yesterday.

Market watchers, meanwhile, had seen the MPC's decision coming.

Paiboon Kittisrikangwan, secretary of the MPC, said economic growth from July this year through to June next year was now expected to come in at almost 5 per cent, led by an increase in public investment.

The central bank is, however, sticking to its full-year growth projection of 1.5 per cent for 2014.

"The 1.5-per-cent projection for the whole year might seem low, but we have to consider that this is the result of political turmoil in the first half of the year … but in the next 12 months, and disregarding the first six months [of 2014], we will be able to grow year on year by almost 5 per cent, which is a good level of growth if compared to a normal year," he said.

Meanwhile, the pressures from rising inflation, high household debt and geopolitical risks remain at an acceptable level since inflation is "contained", high household debt is "maintained", and the geopolitical risks in Europe and the Middle East still have minimal effects on the global economy, he said.

Moreover, the flow of capital remains stable, but the central bank will keep an eye on all these developments, he added.

The headline inflation rate for July came in at 2.16 per cent, down from the previous month's level of 2.35 per cent, while the latest household-debt ratio to gross domestic product is calculated at 82.68 per cent for the first quarter - up from 82.3 per cent in the final quarter of last year.

Paiboon said there was no "magic number" when it came to assessing the level of household debt because many indicators had to be taken into account, but according to the international standard, household debt has to be more than 85-100 per cent of GDP in order to be termed a crisis.

The current debt level is not, therefore, worrisome and the Bank of Thailand will not take any additional measures to lower it, he said.

Charl Kengchon, managing director of Kasikorn Research Centre, said the central bank's decision to maintain the policy interest rate had been expected by the market, since the economy was still in need of support from monetary policy to continue its recovery.

The research house believes the country's GDP will grow by 4 per cent next year, he said.

"Currently there is no pressure from inflation, the household-debt level is not worrying, and the economy continues to recover. Therefore, the MPC decided to maintain the benchmark policy rate, which is in line with the prediction of the market," he added.

Gundy Cahyadi, economist at DBS Bank, said he expected the central bank to keep its rates unchanged for the rest of the year, since GDP growth momentum was likely to pick up in late-2014, but a return to near-term potential would still take some time.


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