August 5, 2015
Thailand’s central bank kept its policy rate steady at 1.50 percent, as expected, and said its policy stance “should continue to be adequately accommodative” and it “will stand ready to utilize an appropriate mix of available policy too in order to support the economic recovery, while maintaining long-term economic and financial stability.
The Bank of Thailand (BOT), which cut its rate in March and April by a total of 50 basis points, added that it had maintained the rate today because its past decisions had eased monetary conditions “while the direction of exchange rate movement has stayed conductive to the economic recovery.”
The Thai baht started depreciating in April this year and has continued to drop, helping the competitive position of Thai exports. Today the baht eased further in response to the BOT’s decision to trade at 35.19 to the U.S. dollar, down 6.5 percent this year.
The BOT, which last week again trimmed its growth forecast for this year to less than 3.0 percent, said the economy had continued to recover “gradually” in the second quarter and is expected to maintain a similar pace during the rest of the year.
However, downside risks had risen from the slowdown in China and domestic drought while export of goods had contracted more than previously assessed due to lower demand from China and other Asian economies.
In March the BOT cut its 2015 growth forecast to 3.0 percent from 3.8 percent and last week a senior director in the bank’s economic and monetary policy department said the worse-than-expected performance of exports had led it to cut its forecast to less than 3 percent.
In September the BOT will update its March forecast.
In the first quarter of this year the Thai economy expanded by 0.3 percent from the fourth quarter for annual growth of 3.0 percent, up from 2.1 percent.
The BOT also said it expects headline inflation to remain in negative territory due to energy costs but is likely to have bottomed out and gradually pick up in the second half of the year. But the point of inflation turning positive might be delayed due to limited demand-side pressures and a slower-than-projected recovery of global oil prices.
Thailand’s headline inflation rate was minus 1.05 percent in July compared with minus 1.07 percent in June, for the seventh month in a row of deflation.
The Bank of Thailand issued the following statement:
“The Committee voted unanimously to maintain the policy rate at 1.50 percent per annum.
Key considerations for policy deliberation are as follows.
The Thai economy continued to recover gradually in the second quarter, and is expected to maintain the similar pace of recovery during the rest of the year. Nevertheless, downside risks increased from a slowdown in the Chinese economy and the adverse impact of domestic drought. Higher-than-expected improvement in tourism and high investment spending by the government remained the main growth drivers. Meanwhile, private consumption and investment improved at a measured pace. However, exports of goods contracted more than previously assessed due to subdued prices and reduced volume as a result of lower demand from trading partners, especially China and other Asian economies.
Headline inflation continued to stay in the negative territory due mainly to energy costs. However, it is likely to have bottomed out, and is expected to gradually pick up in the second half of the year as the base effect of high oil prices begins to wane. The Committee will continue to closely monitor domestic price development as the period at which headline inflation is expected to turn positive might be delayed as a result of limited demand-side pressure and slower-than-projected global oil price recovery.
In deliberating monetary policy, the Committee judged that the conduct of monetary policy has thus far eased monetary conditions, while the direction of exchange rate movement has stayed conducive to the economic recovery. Therefore, the policy interest rate should be kept unchanged at this meeting. The Committee were of the view that monetary policy stance should continue to be adequately accommodative, and will stand ready to utilize an appropriate mix of available policy tools in order to support the economic recovery, while maintaining long-term economic and financial stability. “
