Policy rate maintained as expected

Economists widely expected the central bank to stay put. 

So far this year, the MPC has cut the policy rate by 50 basis points, 25 basis points each at the meetings on March 11 and April 29. Central banks which convened this week have also maintained their policy rates. 

Year to date, the baht has weakened by over 6 per cent against US dollar, with much of the depreciation taking place in the past two months. 

Mathee Supapongse, secretary of the Monetary Policy Committee (MPC), announced that all MPC members voted unanimously to maintain the policy rate at 1.50 per cent per annum.

The MPC viewed that the economic recovery pace in the remaining months of the year should remain unchanged from the second quarter. It also highlighted the increasing downside risks following the slowdown in the Chinese economy and the adverse impact of domestic drought. Higher-than-expected improvement in tourism and high investment spending by the government remained the main growth drivers. Meanwhile, private consumption and investment improved at a measured pace. However, exports of goods contracted more than previously assessed due to subdued prices and reduced volume as a result of lower demand from trading partners, especially China and other Asian economies. 

In this scenario, headline inflation continued to stay in the negative territory due mainly to energy costs. However, it is likely to have bottomed out, and is expected to gradually pick up in the second half of the year as the base effect of high oil prices begins to wane. The committee will continue to closely monitor domestic price development as the period at which headline inflation is expected to turn positive might be delayed as a result of limited demand-side pressure and slower-than-projected global oil price recovery, the committee said in a statement.

"In deliberating monetary policy, the committee judged that the conduct of monetary policy has thus far eased monetary conditions, while the direction of exchange rate movement has stayed conducive to the economic recovery. Therefore, the policy interest rate should be kept unchanged at this meeting. The Committee were of the view that monetary policy stance should continue to be adequately accommodative, and will stand ready to utilise an appropriate mix of available policy tools in order to support the economic recovery, while maintaining long-term economic and financial stability," Mathee said.