Stronger economic headwinds anticipated

The minute of the March 11 meeting released today explained why MPC reached the decision to cut the policy rate. Unveiled today was the decision to revise the the economic growth forecast for 2015 to 3.8 per cent from 4 per cent.

The forecast for 2016 is maintained at 3.9 per cent.

Last year, the economic growth was only 0.7 per cent due to political uncertainties at home and external economic volatilities. 

Meanwhile, headline inflation forecast for 2015 is chopped from 1.2 per cent to 0.2 per cent due mainly to lower oil prices. The forecast of core inflation which excludes energy prices is maintained at 1.2 per cent.

"In light of the economic assessment above, the MPC lowered growth projection for 2015, and assessed that risk to projection leans toward the downside. Downside risk comes from the possibilities of slower-than-expected global economic recovery following developments in Europe and China and lower-than-expected

government disbursement due to limitations in implementing investment projects," the MPC said.

It is of the view that the recovery pace would be slower than expected, as domestic spending tends to be lower than expected. 

Major developments contributing to the MPC’s forecast revisioninclude (1) the slower-than-expected global economic recovery due to growth moderation in China and Asia, (2) lower-than-expected domestic demand in Q4 2014 and January 2015, (3) more delays to government spending than expected, especially in public investment, and (4) lower-than-expected world oil prices.