BOT expected to leave policy rate unchanged

Monetary authorities will likely leave the policy rate unchanged at their meeting on Wednesday out of growing concern that the ailing global economy could brake Thailand’s export-oriented growth, economists said.
The Bank of Thailand “is likely to keep the policy rate on hold at 3.5 per cent this Wednesday”, said Usara Wilaipich, senior economist at Standard Chartered Bank (Thai).
The rate is also expected to be maintained at this level, which is considered relatively accommodating in real terms, in the last Monetary Policy Committee meeting of this year on November 30, she said.
The MPC has gradually raised the key rate by 225 basis points since July last year.
Chow Penn Nee, a Singapore-based economist at United Overseas Bank (UOB), said: “The deterioration in the global economy should impact the export-driven Thai economy and consequently, the BOT looks likely to pause on its rate hikes [this time] in light of slowing growth in the region.”
Given the severe flooding and its adverse impact on the economy, especially manufacturing, a rate cut cannot be ruled out, she said.
However, “inflation could rise temporarily [from the flooding crisis] due to short cycles of agricultural products, and the BOT is unlikely to react to this short-term price effect”, she said.
Tisco Securities also expects a rise in inflation in the next few months due to rising food prices.
“However, with the flooding crisis and higher global risks from euro-zone debt problems, we believe downside risks to Thailand’s economic growth outweigh the inflation threat,” Tisco said in its report.
The brokerage expects the MPC to keep the policy rate steady throughout next year.
Given the gloomy situations in the slowing US economy and struggling euro zone, faced with a sovereign debt crisis, policy-makers are unlikely to raise the benchmark interest rate in the next 15 months, said Supavud Saicheua, an economist at Phatra Securities.
Usara said that next year, if there is no recession in the global economy or hard landing for the Chinese economy, policy-makers would likely leave the rate at its current level.
And DBS Bank said in its note: “We have not pencilled in rate cuts in our interest-rate forecast and expect rates to be stable, unless the worst-case scenario of a global recession plays out.”
Chow of the UOB said: “Inflation is also expected to ease if economic growth slows [in 2012]. The BOT could hold its rates at 3.5 per cent until next year.”
Thailand could see downside risks for the policy rate in the coming year.
“If economic growth or headline inflation is consistently below the central bank’s estimates, policy-makers will likely cut the rate,” Usara said.
The central bank forecasts next year’s GDP growth at 4.1 per cent. It has proposed to shift its policy target to headline inflation of 3.0 per cent plus or minus 1.5 percentage points next year. Currently, inflation targeting is set for core inflation of 0.5-3.0 per cent.
StanChart predicts headline inflation at 3.0 per cent next year.