As expected, MPC keeps rate at 2%
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THE MONETARY Policy Committee yesterday surprised no one by voting overwhelmingly to leave the policy interest rate at 2 per cent in light of the "weaker than expected" economic recovery.
The MPC resolutely held the benchmark interest rate at 2 per cent for the fifth meeting since April 23 by a vote of 6-1.
Mathee Supapongse, secretary of the Bank of Thailand’s MPC, said the recent increase in government spending was not enough to compensate for the slowdown of other sectors.
The committee urged the government to stick with the acceleration of its fiscal-budget disbursement and its investment plan to support the economic recovery in the next period.
The MPC’s prediction for growth of gross domestic product in 2014 is 1.5 per cent, which is also expected to be revised along with its projection for exports, which was flat growth, since the sector is now in danger of shrinking this year.
“The MPC wants the government to carry on with its investment plan, since there are signs that it might be delayed, while the actual increase of the government’s investment will boost the confidence of the private sector and provide them with clarity. This will help them make decisions regarding their own investment,” Mathee said.
While volatility in global fund flows is expected to increase next year from the differences in the economic policies of major economies, the MPC is not worried and believes that investors still have confidence in Thailand’s economy, since it is still on the “growth path”.
“The divergence of polices of major economies, including the Bank of Japan’s decision [to expand its quantitative easing programme], do not have that much effect on Thailand at the moment, while the US has already terminated its QE regime.
“The raising of its [benchmark] interest rate will remain to be seen along with the greater consequences of the expected increase on fund flow volatility, which has yet to occur,” he said.
Jaruwat Preepreamkul, head of domestic fixed income and foreign sovereigns at UOB Asset Management, said the MPC maintained the status quo because economic figures in the third quarter were lower than what it was banking on. The MPC would probably have lowered the interest rate this time if the US economy had not recently picked up, he said.
The policy-makers might lower the interest rate in their next meeting in January if domestic government spending and the world economy do not pick up in this quarter as they expect. However, that would not help the economic expansion here.
The MPC will most likely maintain the policy interest rate at this level until the US raises its key interest rate, which UOB now expects by the third quarter of next year, because of the apparent braking of the global economic recovery.
“Right now, an increase of Thailand’s policy rate will most likely come after the increase of the US interest rate, since that move would be a precautionary action to help prevent the drastic effect from expected heavily volatile fund flows once the US lifts its rate,” Jaruwat said.
