MPC keeps policy rate on hold
The Bank of Thailand's Monetary Policy Committee today unanimously decided to maintain the policy rate at 3 per cent, chiefly because of greater external factors led by the deepening of the eurozone crisis.
Growth is now a major risk to Thailand's economy, rather than inflation, said Paiboon Kittisrikangwan, secretary of the MPC.
"The balance of risks for the Thai economy was skewed towards growth ther than inflation, primarily reflecting heightened global economic risks stemming from the large degree of uncertainty surrounding the economic problems in Europe," the MPC said in its statement.
To this end it deemed that maintaining its "accommodative monetary policy stance" was appropriate to support a firm recovery of the Thai economy and temper some of the external risks. It reiterated that it stands ready to take appropriate policy action as warranted.
Paiboon explained that the euro crisis, reflecting through chaos in Spain banking sector, could weaken the Euro area's growth more than expected and this could also affect the US economic recovery. China's economic slowdown also contributes to weak global growth. Still, the MPC is confident that strong demand in Asia as well as room for additional stimulus measures would help cushion the global weaknesses.
On Thailand's economy, the recovery pace was better than expected in the first quarter and the momentum is expected to proceed, thanks to high loan growth and stimulus measures. A concern is the recovery pace may slow down, should the euro area's demand for Thai exports has fallen sharply.
While commodities prices are falling in line with global demand, the minimum wage hike as well as hikes in energy prices keep the inflation expectation at the high level. "Inflationary pressure remains, but at a lesser extent than before."
