Policy rate maintained at 2%
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The Bank of Thailand today opted to keep the policy rate at the currently low level, citing the early stage of economic recovery and low risks to financial stability.
At the meeting today, the five members of the Monetary Policy Committee (MPC) voted unanimously to keep the policy rate at 2 per cent. Two members were unable to attend the meeting.
"The committee judges that the current degree of monetary accommodation is still needed given an early stage of recovery, and does not pose risks to financial stability. The committee thus voted unanimously to maintain the policy rate at 2 per cent per annum," said Mathee Supapongse, secretary of the MPC.
Most economists have anticipated that the rate would remain low for a while.
"The MPC is likely to maintain its policy rate at 2 per cent. Although the economy averted a technical recession in the second quarter, with GDP rebounding 0.9 per cent quarter on quarter, the recovery has been weak. Hence, an accommodative policy stance is still warranted for some time, in our view," said Nalin Chutchotitham, economist of HSBC Bangkok Branch.
Gundy Cahyadi, the economist of DBS Research, also expected the rate to stay at 2 per cent for now, given the brighter economic growth prospect and gradual increase in inflation.
"The monetary policy has been kept accommodative for some time now. Look for the BOT to start raising its policy rate in the third quarter of 2015, when we expect GDP growth to start trending back towards 5 per cent," he said.
Looking further ahead, some policy normalisation is necessary, he added.
Moody's Analytics has a similar view.
"Political uncertainty and the recent coup are weighing on growth and tempering inflation pressures. Rates are likely to remain accommodative for the rest of 2014, though any further deterioration in the outlook could prompt more rate cuts."
At the September 17 meeting, the MPC considered that the global economy economy recovered at a moderate pace, with greater growth differentials across regions. Recovery in the euro area and Japan remained weak, though benefits from sustained policy support should become more evident in the periods ahead. The US
continued to recover firmly, while Asian economies expanded as expected.
Latest data suggested that improving private confidence and a rebound of private and public spending have shored up domestic demand, which should help sustain economic momentum.
"Nevertheless, supply-side limitations and low agricultural prices have affected exports. Tourism has begun to recover slowly towards its normal trend. Meanwhile, the financial system and inflation remained stable."
