Policy rate maintained at 2.75%

To Su Sian Lim, HSBC's Asean economist, today's no-change decision and breakdown of votes suggests that the central bank continues to hold its ground against government pressure for a rate cut.

"We would not describe the policy statement as more dovish than in February. Counter-balancing its wariness over Europe and capital flows were upbeat comments on the Thai economy, and on inflation. Today's policy decision does not change our view that upward policy normalisation needs to take place at some point this year, likely starting from late third quarter. Two 25-basis point hikes then should take the policy rate to 3.25 per cent by the year-end."

 

Siam Commercial Bank expects the MPC to maintain the policy rate until end of this year. Robust loan growth and domestic consumption limits the chance for a rate cut, to boost the economy, the bank said. 

After the meeting today, Paiboon Kittisrikangwan, secretary of the Monetary Policy Committee (MPC), announced that 5 members voted to keep the rate on hold, with one member voting for a cut in the policy rate by 0.25 per cent per annum. One MPC member was unable to attend this meeting due to obligations abroad.

"The MPC will continue to closely monitor domestic economic developments as well as risks to financial stability, and stand ready to take appropriate policy action," he said in the announcement. 

In the MPC's view, the global economy has continued to recover gradually. However, tail risks have edged up somewhat since the last meeting, as financial crisis in the eurozone could exacerbate the economic contraction. The US economy has improved on the back of private consumption and investment, with fiscal sequestration weighing on growth. The Japanese

economy has benefited from planned monetary and fiscal policy stimulus. The Chinese and Asian economies have continued to expand as expected on the back of domestic demand,

while the outlook for exports improved slightly.

The Thai economy is projected to moderate toward a normal trend in the first quarter of 2013, after accelerating in the previous quarter. In the periods ahead, domestic demand should continue to be a key engine for growth, supported by favourable household income, high employment, as well as accommodative monetary and credit conditions. Fiscal stimulus should also gradually pick up pace in the second half of this year, in line with the start of public investment in flood management and large'scale infrastructure projects, lending further impetus to private investment. Exports should expand slowly, in line with global economic conditions. Inflation remains within the target, but potential upward pressure from supply constraints and higher labour costs warrants monitoring. 

The MPC judges that, given the fragile state of the global economy, a continuation of accommodative monetary policy stance remains appropriate. However, risks to financial

stability, including volatile exchange rate and capital flows, are a concern.