Rate 'supportive' amid increased volatility
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Five members of the Bank of Thailand's Monetary Policy Committee voted for no change in the policy rate at today's meeting, viewing that the current rate is supportive of the economic recovery amid increased global financial market volatility.
"Most members deemed the current stance of monetary policy to be sufficiently supportive of the economic recovery. In addition, maintaining the policy rate helps to contain risks associated with a prolonged period of low interest rates and increased global financial market volatility," said Mathee Supapongse, secretary of the MPC after the meeting.
However, two members judged that monetary policy should play a greater role in supporting the economy in light of higher risks from global economy and
financial markets, long implementation lag of fiscal stimulus, and low inflation for some periods ahead which would result in higher real interest rates.
The MPC today decided to maintain the policy rate at 2 per cent per annum. Two of the seven members voted to reduce the rate by 0.25 per cent.
The policy rate has stayed unchanged since March 2014.
With the slowdown in prices globally since 2H 2014, central banks worldwide have either adopted more dovish monetary stance (including the Monetary Authority of Singapore), or maintained existing dovish policies.
"With that, we believe that the BOT will maintain the current policy rate of 2 per cent throughout 2015 as the domestic demand recover from both the lower base in 2014 as well as the decline in energy prices," said UOB in a research note.
With the release of the policy decision today, the baht gained 0.31 per cent in a short time frame and is currently trading at 32.57 per dollar.
Maintaining the view of the interest rate normalisation in the US in June this year, UOB expects broad dollar strength against Asian currencies and the dollar would strengthen to 33.40 by end 2015.
Siam Commercial Bank's Economic Intelligence Centre also expects the policy rate to stay at 2 per cent throughout the year. In light of low inflationary pressure, it foresees the adoption of more easing measures should the baht rise sharply.
The MPC's decision was based on the economic condition in the fourth quarter. In the quarter, the Thai economy continued to expand from improving exports and tourism, which helped to offset slightly weaker-than-expected domestic demand. Looking ahead, the economy should continue to recover and benefit from a decline in energy prices which should strengthen the recovery of domestic demand. Nevertheless, key downside risks from global economy remain, including slow recovery in
major trading partner economies, lingering political uncertainty, and policy divergence among major central banks which could result in higher volatility in the global financial markets.
Headline inflation declined due to a marked fall in energy prices. This increased the probability of breaching the lower bound of the inflation target in 2015, but is not considered deflation because domestic demand continues to expand and non-oil prices do not decline. Core inflation thus remained stable. In addition, headline inflation is expected to rebound in the second half of 2015, in tandem with global oil prices following more balanced conditions in the global oil market. Risks to overall financial stability remain contained, but household loan quality and asset price movements warrant continued monitoring.
"Going forward, members concurred that monetary policy should stay accommodative to provide continued support for the economy. The MPC will closely
monitor developments of the Thai economy and stand ready to take appropriate actions as warranted." Mathee said.
