MPC likely to leave rate unchanged, say experts

Economy April 21, 2014 00:00

By Sarun Kijvasin
The Nation

3,334 Viewed

'Cutting interest rate now won't solve the many problems faced by the economy'

Economists believe that the Bank of Thailand’s Monetary Policy Committee meeting on Wednesday would leave its benchmark rate at 2 per cent pending more economic data.
Korbsak Phutrakul, an executive vice president of Bangkok Bank, said last week that based on the latest economic figures, he expects that most of the MPC members would vote to keep the present rate until the economic picture is in sharper focus. 
He agreed with some MPC members, who recently said the economic problem does not solely stem from the lack of purchasing power but also from the lack of consumer confidence. 
Cutting the policy rate again could solve some issues but would not tackle the whole problem. 
Amornthep Chawla, vice president and head of economic and financial market research at Cimb Thai Bank, said the MPC meeting on Wednesday was not expected to make any surprise decision because the members probably prefer to first see how much the 0.25-percentage-point trim made at its last meeting on March 12 could boost the economy. 
Pipat Luengnaruemitchai, assistant managing director for research at Phatra Securities, said the central bank has been giving a clear signal about the problems spawned by the political difficulties. 
A drop in the policy rate now would not be of much help. The MPC would likely hold the policy rate so that this tool could be employed later when needed.
The country’s external factors had also limited the central bank’s space for taking monetary policy action in the future, especially since the US’ monetary policy would swing back to a more neutral position next year. 
Policy easing 
If the MPC decides to lower the policy rate now, it might have to adjust the rate back up again in a short period of time.
Policy easing would not help stimulate significant growth of the economy. The problem was that people were not confident in the country’s political sector. Any lowering of interest rates would not help encourage people to open their purse strings, but would only help relieve the impact from the interest burden, he added.
Benjarong Suwankiri, director of economic analysis at TMB Bank, said the latest economic performances, both domestically and abroad, had not changed significantly from the previous figures. 
The MPC should maintain the policy rate at 2 per cent to give enough time for the recent rate reduction to render its full effect on the economy.
Despite an increase in inflation, the overall economic system has not been at risk. 
It would be better to wait until the end of the year to see if there was any meaningful impact on the economy caused by higher inflation.