Policy rate adjustment not expected at MPC meet tomorrow

Tim Leelahaphan, an economist and assistant vice president of Maybank Kim Eng Securities (Thailand)’s research department, said yesterday that the MPC sould most likely leave the policy interest rate at 1.75 per cent at tomorrow’s meeting because the committee’s 4-3 vote to cut the rate by 25 basis points at its last gathering was a close call and the government has already ramped up its fiscal stimulus efforts.

Finance Minister Sommai Phasee also hinted last week that Article 44, which gives the junta nearly absolute power under the interim constitution, could be used to push investment projects that are stuck in the pipeline because of pending regulatory changes. 

“At least, for now, the central bank could wait and see the effects of those [monetary and fiscal measures] on the economy,” Tim said.

He said there were no external pressures on the MPC, since most central banks in the region, except for China, have been leaving their monetary policies unchanged. The Thai central bank will most likely wait and see how things go before possibly making a monetary decision at the following meeting in June. 

Sommai said last week that his ministry would now concentrate on mid- to long-term measures, since much of the past six months had been spent on short-term stimulation of the economy. 

The ministry will wait and see what effects are forthcoming rather than introducing more short-term stimulus measures at this time.

The first round of fiscal stimulus from the military government started with the Bt40-billion and Bt8-billion cash handouts to rice and rubber farmers, followed by Bt23 billion worth of job-creation measures to fix up schools and other government buildings.

Deputy Prime Minister Pridiyathorn Devakula insisted last month that construction on the government’s job-creation projects and the small to mid-size Board of Investment projects approved last year were expected to commence this quarter.

The BOI approved Bt700 billion worth of projects last year.

The second round of stimulus came in February and March when the Finance Ministry approved Bt40 billion for the village fund scheme, Bt37.6 billion for water-management projects and Bt40.7 billion for job-creation projects such as road and highway maintenance.

Supant Mongkolsuthree, chairman of the Federation of Thai Industries, urged the MPC to lower the benchmark rate by 25 basis points to depreciate the baht and help the troubled export sector, even though things are looking up on the private-investment side.

“Operators are beginning to invest now ahead of the launch of the AEC [Asean Economic Community] and the special economic zones, while businesses that have gained BOI approval are also expected to begin construction this quarter, so there is nothing much to worry about in this respect at this moment.

“I expect that the TISI [Thai Industries Sentiment Index] will improve in April from the last result in March,” he said. 

Linda Ubolriabroy, senior fund manager for domestic fixed income and foreign sovereigns at UOB Asset Management (Thailand), said she expected the MPC to maintain its policy stance since it would take some time for the previous cut to spin its magic on the lending situation.

Fears of a faster-than-expected US interest-rate increase have also abated after applications for unemployment benefits in that country were higher than expected and retail sales performed poorly.

Pimonwan Mahujchariyawong, deputy managing director of Kasikorn Research Centre, said inflation was not weighing on the MPC as it was still sitting in negative territory, while high household debt and lower savings were limiting headway for the MPC to flex its monetary muscles. 

TMB Analytics and Thanawat Polvichai, director of the University of the Thai Chamber of Commerce’s Centre for Economic and Business Forecasting, also predict that the MPC will hold the benchmark rate at 1.75 per cent for similar reasons.