Thailand holds rate, revises up 2015 growth forecast

December 16, 2015

By CentralBankNews.info
    Thailand’s central bank left its key policy rate at 1.50 percent, repeating that it still wants to keep its monetary policy stance “sufficiently accommodative” and is ready to “utilize an appropriate mix of available policy tools in order to support the economic recovery while ensure financial stability.”
    However, the Bank of Thailand (BOT), which has cut its rate by 50 basis points this year, added that it kept the rate steady today given “financial stability considerations and a potential rise in financial market volatility due to monetary policy divergence among advanced economies.”
    The BOT was slightly upbeat about the economic recovery, saying government spending,
expanding private consumption and improving tourism, “especially Chinese tourists,” had helped in the third quarter and the growth forecast for 2015 of 2.7 percent had been revised upward slightly.
    But exports continue to contract and and faces challenges from slower growth in China, other Asian countries, and low commodity prices, and the forecast for 2016 of 3.7 percent was close to the current forecast. The BOT will release its new forecast on Dec. 25.
    Thailand’s Gross Domestic Product expanded by an annual rate of 2.9 percent in the third quarter, up from 2.8 percent in the second quarter,
    While the BOT considers the exchange rate of the baht to be supportive of economic recovery, it will continue to keep a close eye on downside risks to growth, particularly those from the slowing global economy, structural limitations and uncertain financial markets.
    After the “taper tantrum” in the Spring of 2013 when the baht tumbled, it remained largely stable until April this year when it again started to fall.
    Today the baht was trading at 36.09 to the U.S. dollar, down almost 9 percent since the start of this year.
     Deflation continues to maintain its grip on Thailand with consumer prices falling by 0.97 percent in November, the 11th consecutive month of falling prices, but the BOT said inflation is projected to rise gradually and turn positive in the first half of 2016 as the base effect of low oil prices wanes.
    “Meanwhile, deflationary risks remain contained as demand continues to expand and core inflation is still positive,” the BOT said.
    It’s forecast from October calls for headline inflation of minus 0.9 percent this year and 1.2 percent in 2016.

    The Bank of Thailand released the following statement:

“The Committee voted unanimously to maintain the policy rate at 1.50 percent.
Key considerations for policy deliberation are as follows.

From the third quarter to October 2015, the Thai economy gradually recovered, supported by high disbursement of public expenditure, an expansion in private consumption of necessity goods, and an improving number of tourist arrivals, especially Chinese tourists. Meanwhile, merchandise exports continued to contract, and going forward would continue to face downside risks from a slowdown in the Chinese and other Asian economies and subdued commodity prices. Nevertheless, the economic growth forecast for 2015 was slightly revised up on the back of continued expansion of consumption and fiscal stimulus measures. The economic growth forecast for 2016 remained close to the previous assessment.

Inflationary pressure declined slightly from the previous meeting due mainly to a fall in global oil prices, causing headline inflation to stay in negative territory. Nevertheless, headline inflation is projected to rise gradually and to turn positive during the first half of next year, as the base effect of high oil prices wanes. Meanwhile, deflationary risks remain contained as demand continues to expand and core inflation is still positive, consistent with medium-term inflation expectations of the public.

The Committee assessed that monetary conditions and exchange rate remain supportive to the economic recovery. Moreover, given financial stability considerations and a potential rise in financial market volatility due to monetary policy divergence among advanced economies, the policy interest rate should be kept unchanged at this meeting. However, the Committee will continue to closely monitor downside risks to growth, particularly those stemming from a slowing global economy, structural limitations, and uncertainty in the global financial markets.

Looking ahead, monetary policy stance should continue to be sufficiently accommodative. The Committee stands ready to utilize an appropriate mix of available policy tools in order to support the economic recovery, while ensuring financial stability.”

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