BOT cuts growth projection on increasing downside risks

Central bank spokeswoman Roong Mallikamas said on Friday that the Thai economy should show low activities in the first half. There is a chance that defaults will rise, in light of slow economic activities and consumption. However, she said that non-performing loans remain low, as lenders and borrowers are more cautious on spending.

Still, Thailand has not suffered from deflation, given that inflation edged up from 1.67 per cent in December to 1.93 per cent in January. Meanwhile, the private sector foresees inflation in the next 12 months to stay at 3-4 per cent, in line with an increase in the production cost. Under this condition, they could not raise product prices. 

The BOT expected the inflation to stay at 2-3 per cent this year. 

The Monetary Policy Committee, one of three key committees of the central bank, revised down the growth projection at the January 22 meeting. 

According to the meeting minute released on February 5, the committee agreed that the downside risks to growth have increased substantially. Some 

members noted that any benefits of global growth pickup this year on Thai exports and tourism could be restrained by the ongoing political situation. Growth impact could be more pronounced if a prolonged unrest were to cause a switch of export orders to other countries, with potential knock-on effect on domestic spending. Members also discussed the degree to which the recent baht depreciation may have helped support the export sector by increasing their income in local currency. Many members saw the benefit of stable exchange rates amid currently uncertain economic environment and fragile private confidence. 

The Thai economy in 2014 was projected to expand less than previously assessed, with prolonged political situation posing further downside risks to private and public spending as well as tourism. Inflationary pressure overall remained subdued in line with domestic demand and world crude oil prices. 

In their discussion of financial market developments, several members noted the relative stability of the Thai financial markets, and their resilience against both domestic and external shocks. This may have owed in part to advanced anticipation of QE tapering, as well as a stabilising role of long-term investment inflows during the intervening period. Nevertheless, current domestic political situation and global financial market developments kept short-term uncertainties elevated, and market sentiments could change swiftly, warranting close monitoring. The policy framework in place remained appropriate in countervailing these risks.