Policy rate expected to remain on hold at 3%

In line with the consensus, the Reserve Bank of Australia yesterday decided for a third time to keep its overnight cash-rate target at 3.5 per cent.
Also meeting this week are the Bank of England and the Bank of Canada.
Barclays Research also expects no change in policy rates when the BOT convenes today and Bank Negara Malaysia meets tomorrow.
Thailand’s inflation remained flat last month, staying at 2.7 per cent year on year, while core inflation moved lower to 1.76 per cent.
The research house maintains its 2012 projections at 3 per cent for headline inflation and 2 per cent for core inflation.
“Today’s print is unlikely to change the central bank’s dovish stance, as the recent drop in export-dependent industrial output and private consumption and weak agricultural income have increased fears of a slowdown,” Barclays analyst Rahul Bajoria said, adding: “The risk of a cut in the next six months looks non-negligible.”
In a speech in Bangkok yesterday, BOT Governor Prasarn Trairatvorakul insisted that domestic consumption and investment remained strong, despite impacts on the export sector.
Private investment in July rose 19.5 per cent from the same period last year, while consumption expanded 7 per cent. However, exports in the first seven months of the year contracted by 0.4 per cent.
Prasarn recently indicated that the “central bank does have room to cut rates”, as weakening external demand threatens the recovery. However, stronger-than-expected growth performance in the second quarter convinced Barclays’ analyst that the BOT would save its buffer, given that the domestic economy is holding up reasonably well.
For its part, Moody’s Analytics said: “We expect the policy rate will remain on hold at 3 per cent for the rest of 2012, as the Bank of Thailand weighs the risks from the soft global economy against steady domestic demand.”
With domestic demand holding up but export growth remaining weak and inflation stabilised, Nomura Research also expects no change in the policy rate.
To date, HSBC Research has not changed its view that the central bank could hold off interest-rate hikes until early next year, providing energy subsidies are not removed.
Acknowledging that oil prices, which are hitting US$110 per barrel, could remain high, Siam Commercial Bank’s Economic Intelligence Centre also believes the central bank will be more biased towards economic growth. This will encourage it to maintain the policy rate at 3 per cent until the end of the year.
Higher oil prices on tension in the Middle East raised Thailand’s retail fuel prices last month by 3-5 per cent, the centre said.
Economists have come up with a consensus that the country’s inflation this year will stay at 3.3 per cent, before rising to 3.8 per cent next year. In Asia, Vietnam is expected to experience the highest inflation in 2012, at 10.6 per cent, and Taiwan the lowest, at 1.6 per cent.
According to HSBC Research, policy rates of Thailand and other countries in the Asean 5 group (except Malaysia) will be kept lower than last year’s to boost their economies, in light of the euro-zone crisis’ impact on export revenue.
At the end of the year, Malaysia’s policy rate is expected to remain at 3.75 per cent, against 3 per cent at the close of last year. Thailand’s rate will remain at 3 per cent this year, from 3.25 per cent last year.
Among the Asean 5 nations, Vietnam’s policy rate is the highest, at 8 per cent compared with 14 per cent last year when inflation exceeded 18 per cent.
Policy rates in Indonesia and the Philippines are expected to end the year at 5.75 per cent and 3.75 per cent respectively, HSBC said.