Rate maintained despite downside risks

business June 10, 2015 15:47

By The Nation

The Bank of Thailand decided to maintain the policy rate at its meeting today, banking on the projected recovery in the economy in the latter months of the year despite some downside risks.

The Monetary Policy Committee (MPC) will meet again on August 5. 
Siam Commercial Bank's economic team is convinced that the policy rate may be cut again within this year, to 1.25 per cent, as private consumption and investment still slides. Meanwhile, inflation is below the target range which pushes Thailand's real interest rate above those in other Asean nations. Moreover, though the baht falls to 33.7 per US dollar, it remains relatively strong compared to Indonesian rupiah and Malaysian ringgit. 
However, Tisco Bank's economic strategic unit expects no further cut this year.
"The unanimity of the committee to maintain its monetary policy stance has us more convinced that the MPC should keep its policy rate on hold at 1.50 per cent for the rest of the year."
The MPC today voted unanimously to maintain the policy rate at 1.50 per cent per annum. It cut the policy rate by 50 basis points in the previous two meetings, to bolster the economy which softened in the first four months of 2015 due to sluggish private consumption and continued contraction in exports. As Chinese and Asian economies’ demand for Thai products dropped along with a shift in global trade structure, supporting the economy in the period was only increased disbursement of public investment expenditure and continued improvement in tourism.
“In the periods ahead, the economy is projected to improve gradually, but subject to downside risks from slower-than-expected recovery of the global economy, especially China and other Asian economies,” said Mathee Supapongse, secretary of the MPC, at the press conference today.
The MPC in this meeting judged that the conduct of monetary policy has thus far eased monetary conditions, while the direction of exchange rate movement has become more conducive to the economic recovery. Nevertheless, the Thai economy remained subject to downside risks, particularly from the global economy. Therefore, monetary policy stance should continue to be accommodative in order to support the economic recovery.
The MPC also expected inflation to pick up in the second half as the base effect of high oil prices begins to wane, coupled with expected rises in oil and raw food prices. Meanwhile, core inflation was still positive but declined somewhat owing to subdued demand-side pressure. Nevertheless, in the Committee’s assessment, the risk of deflation remains low, as consumption continues to increase, while the prices of most goods and services still increase or stay unchanged, and inflation expectations are close to the inflation target.