MPC votes to maintain policy interest rate at 2.5%

The Monetary Policy Committee (MPC) has voted 6:1 to maintain the policy interest rate at 2.5% per annum and emphasised the need to closely monitor economic developments, especially the export sector.

It said it will also keep a close eye on government measures.

MPC secretary Piti Disyatat announced the results of Wednesday's meeting, saying the committee decided to maintain its policy rate in light of Thailand’s economic growth prospects. It said the growth was driven by domestic demand and the tourism sector, despite weakness in exports. Some export goods are facing increased pressure from heightened competition.

Inflation, meanwhile, is expected to rise gradually and return to the target range by the fourth quarter of this year.

Most of the committee members believe the current policy rate is appropriate for economic growth, which is approaching its potential, and for maintaining financial and economic stability.

According to the MPC, the Thai economy is expected to grow by 2.6% in 2024 and 3% in 2025. This year’s growth is believed to be fuelled by higher-than-expected domestic demand in the first quarter, continued expansion in the tourism sector and increased government spending in the second quarter.

“The export sector, however, is expected to grow at a low rate this year, reflecting structural issues and challenges related to reduced competitiveness. Some products, especially in the automotive sector, are facing additional pressure from declining foreign demand,” Piti said.

The general rate of inflation is expected to remain stable at 0.6% in 2024 and 1.3% in 2025, while core inflation is projected to be 0.5% and 0.9% respectively. Most recent data shows that general inflation has returned to positive territory and is likely to rise driven by domestic energy prices and gradual reduction of diesel subsidies.

“The MPC is concerned about the high level of household debt and believes that lending should align with the process of debt deleveraging to enhance long-term stability. Therefore, it supports the Bank of Thailand’s policy of encouraging financial institutions to grant loans based on the borrowers’ ability to repay and to restructure debts of those struggling with repayments,” he added.

Prime Minister Srettha Thavisin has been fighting a losing battle with the central bank to consider lowering its benchmark rate to stimulate the economy. He believes the current rate of 2.5% is hurting the public and will worsen the problem of rising household debts.