MPC leaves policy rate at 2 per cent
Play
THE BANK of Thailand's Monetary Policy Committee yesterday agreed unanimously that the economy was still on shaky legs and that it would leave the policy interest rate unchanged at 2 per cent until it finds clearer signs of strengthening.
“The economic recovery is not fragile and is on the path of a V-shaped recovery, but we have to wait and see in the next period whether it will revive as expected,” said Mathee Supapongse, secretary of the MPC. “V-shaped” is jargon for a sharp recovery following a slump.
Although consolidating confidence and reinvigorated private and public spending have shored up domestic demand, the recovery in durable goods is still sluggish, a rebound in private investment will take time, growth in exports is languishing and tourists have only just begun to return.
Inflation is still benign, leaving room for the accommodative posture.
For four meetings, the MPC has not touched the benchmark interest rate, which is the third-lowest in region.
The economic recovery is proceeding as expected, led by the resumption of domestic demand and consumption of non-durable goods, but the MPC is worried about the export sector because its recovery is slower than expected and shipments in the first seven months were still modest.
“We have to see the result of government and private-sector spending. As of now, there is some result from the increase in spending of the private sector and the public is encouraging it, but a more apparent result of the increase in spending will remain to be seen,” he said.
A V-shaped recovery will be more evident when September’s economic figures are revealed, he said.
The MPC will revise its forecast for economic and export growth on September 26. The current outlook is for pick-ups in gross domestic product of 1.5 per cent this year and 5.5 per cent next year, and in exports of 3 per cent this year.
The inflation rate continues to be steady while household debt is stable or increasing, but at a more subdued pace. According to the BOT’s website, annualised inflation eased from 2.16 per cent in July to 2.09 per cent in August, while household debt was at 83 per cent to GDP in the first quarter.
Charl Kengchon, managing director of Kasikorn Research Centre, said the MPC has no need to lower the policy rate to drive the economy, as the junta’s government has a clear policy to stimulate the economy.
US low rate policy to go
The market also expects the US Federal Reserve to retire its low rate policy and raise the benchmark rate in the middle of next year, so Thailand’s policy rate should return to normal.
Assuming GDP growth of 4-5 per cent and inflation of 2.5 per cent, the Thai policy rate should not be less than 2.5 per cent, however, the policy rate in Thailand should be above 3 per cent because the US policy rate usually is about 3 per cent.
Thailand’s policy rate should not be less than the US interest rate.
The MPC would likely raise the policy rate in the second half of next year, but the hike will not affect spending and the debt burden much because the rate will be adjusted gradually, he added.
Somchai Amornthum, executive vice president for research at Krung Thai Asset Management, said the MPC would not cut the interest rate any further this year since that would affect financial stability. It will increase the rate next year when the economic recovery is more visible.
