Economists see no need for rate cut

The latest confirmation came from the Bank of Thailand, as the Monetary Policy Committee yesterday decided to maintain the policy rate at 2.5 per cent as expected. 

Fred Gibson, associate economist at Moody’s Analytics, said rampant loan growth, the rising household debt, and weakness of the currency posed a bigger threat to economic stability. 

A lower rate would further boost spending, at a time when household debt is more than 70 per cent of gross domestic product. It would also spur more outflows and further weaken the baht, which like other emerging market currencies, is under depreciation pressure against the US dollar. The baht yesterday fell to a 13-month low of 31.74, as investors pulled out money in anticipation of the US Federal Reserve tapering its stimulus. Asian stocks declined yesterday, while Thai shares also ended lower for the third consecutive day.

 

Current account concerns

Last year, Thailand showed robust growth of 6.4 per cent, thanks largely to the low base in 2011 and stimulus measures.

“The Bank of Thailand is concerned about rampant lending growth and rising household debt, which pose significant downside risks to overall financial stability. Softening export receipts and steady import payments are weighing on the current account, which in addition to the persistent portfolio outflows is dragging on the baht...,” Gibson said in his note, released before the MPC decision was announced.

Echoing Bank of Thailand Governor Prasarn Trairatvorakul’s opinions earlier, Gibson said the recent influx of positive data out of the developed world suggests that the global economy is picking up, posing upside risks to exporters. The external sector should then pick up the slack created by the slowing domestic economy later in the year. If the situation is different from this, he expects a 25-basis points cut by this year’s end. 

Tisco Securities said in a research note that “the technical recession” is mild compared to the sub-prime crisis period. The Thai economy showed quarter-on-quarter contraction of 1.7 per cent and 0.3 per cent in the first and second quarters, against 4.8 per cent in the fourth quarter of 2008 and 2.6 per cent in the first quarter of 2009. 

“The economic growth rate at 4.1 per cent in the first half compared to the same period last year is not dismal, though. Moreover, we agree with the BOT's view that the worst is over and the outlook for the latter half is bright, mainly on the recovery in G-3 countries,” it said.

PM’s Secretary Suranand Vejjajiva also insisted yesterday that Thailand’s economic fundamentals remain strong; all indicators are still positive except the export sector. 

“To cushion the export impact, the Thai government is committed to boosting domestic spending, through support for OTOP products and funding access to small and medium enterprises. The Bt2-trillion infrastructure investment and the Bt350-billion water management plan would help create jobs, generate income, extend growth to rural areas, and enhance the country’s competitiveness,” he said.

Tthe MPC gave a 6-1 vote to maintain the policy rate at 2.50 per cent. It said the softening of the economy in the second quarter was broadly in line with its previous assessment and that the global economy exhibited signs of gradual improvement.