FTI, chamber applaud decision to keep policy rate unchanged at 1.50%
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Representatives from the private sector agree with the Bank of Thailand's decision to maintain the policy interest rate, as changing it would not help the economy and could cause the baht to depreciate too quickly.
“I agree with the decision, since the weaker baht has allowed exporters to relax. A too-rapid deprecation of the baht would hurt investment, and the country’s financial stability is important,” said Supant Mongkolsuthree, chairman of the Federation of Thai Industries.
“When it comes to investment, small and medium-sized enterprises are complaining about their restricted [access] to finance, not how much the interest rate is at the moment,” he added.
The BOT’s Monetary Policy Committee yesterday decided to maintain the benchmark lending rate at 1.50 per cent, among the lowest in the region. So far this year, the MPC has cut the rate by a total of 50 basis points, 25bps on March 11 and again on April 29.
The MPC said yesterday that the Thai economy had “continued to recover gradually and is expected to maintain the similar pace” throughout the year, but downside risk had increased from the slowdown in China and the adverse impact of domestic drought.
Isara Vongkusolkit, chairman of the Board of Trade of Thailand and Thai Chamber of Commerce, said the MPC’s decision was not beyond the private sector’s expectation, as any reduction would not help economic growth as the policy rate is already quite low.
“The private sector is now looking forward to the Finance Ministry’s measures or packages to stimulate economic growth and help boost income among grass-roots people, as these fiscal measures should help promote stronger economic expansion … much more than a rate cut,” he said.
The BOT is expected to cut its current growth projection for gross domestic product, which stands at 3 per cent, when the MPC meets again on September 25, because of the 4.84-per-cent export contraction in the first six months of this year.
Mathee Supapongse, secretary of the MPC, said that even though the depreciation of the baht had happened relatively quickly, it was helping economic growth. Year to date, the baht has weakened by more than 6 per cent against US dollar to around 35, with much of the depreciation taking place in the past two months.
“There is still downside risk to GDP growth from the slowdowns in the global, Chinese and Asian economies, which is hampering the performance of the export sector, while the domestic economy has been hit by the drought,” Mathee said.
“The MPC members deemed that the current policy interest rate was adequately accommodative for the economic expansion, and [they] will stand ready to utilise an appropriate mix of available policy tools to support its recovery.”
When asked for examples of the monetary tools the central bank could use, he said lowering the RRR (reserve requirement rate) would be one but it was not under the consideration of the MPC at the moment.
Other central banks that convened this week also maintained their policy rates.
Sammakorn managing director Kittipol Pramoj Na Ayudhya, who is also director of the Thai Real Estate Association, said the MPC’s decision to maintain the policy rate was better than increasing it because it meant people could still buy homes at lower cost.
Monetary policy currently has little effect on GDP growth as the main problem is people’s concerns about their future income, and most of them have curtailed their spending, including delaying home purchases, he said.
“Consumers are also facing commercial banks’ reluctance to provide mortgages, as seen in the increase of the rejection rate for [housing] loans from the average of 20 per cent in 2014 to the current rejection rate of around 30 per cent,” he said.
Meanwhile, Mathee said the BOT expected headline inflation to be on average in the negative region for 2015 from the increased global oil supply, but it expects headline inflation to be positive in the fourth quarter. It is not concerned about negative inflation since GDP is still expanding and the drop in product prices is not broad-based.
