MPC expected to hold interest rate until next year
The Monetary Policy Committee will hold its policy interest rate at 2 per cent until next year, as the economy is still in early stages of recovery, while fiscal policy will play the stimulus role and monetary policy will take care of price stability unti
The MPC has held interest rates steady at its last two meetings. The previous rate cut was in March when it was trimmed by 0.25 basis points from 2.25 per cent.
Gundy Cahyadi, economist at DBS Bank, said last week that he expects no change in the benchmark interest rate when the MPC meets on Wednesday because the prospects for stronger gross domestic product growth and the incremental rise in the consumer price index mean fewer reasons for any further rate reductions going forward.
"The economy is still in its early stage of recovery and the central bank is likely to keep its rate stable for now and when looking ahead, some policy normalisation is necessary," he said.
As monetary policy has been kept accommodative for some time now, the Bank of Thailand should start tightening in the third quarter of next year when the economic expansion starts trending back towards the 5-per-cent pace.
Tim Leelahaphan, economist at Maybank Kim Eng (Thailand), said the Finance Ministry’s aim of reaching 35-per-cent budget disbursement in the next period instead of the usual 25 per cent would help boost private investment.
The central bank’s optimistic view of economic growth means the MPC will stay comfortable with its current monetary course for the rest of this year.
"Given that the consensus inflation forecast is 2.4 per cent, the policy rate in real terms is negative and we expect a 25 basis points increase during the second quarter of 2015 in order to normalise the monetary stance and to be more in line with global and regional interest rate policy," he said.
Malaysia and the Philippines have hiked their interest rates recently while Thailand’s five-year or lower-tenor yields have risen by about 9bps since the military seized control of the government on May 22, he added.
TMB Analytics expected the MPC to unanimously vote to keep the policy interest rate at 2 per cent to support the economy that has gradually expanded after hitting rock bottom, through the return of confidence and private consumption.
However, the export recovery remains subdued due to the low prices of crops while tourist numbers have increased going into the high season but by less than the same period last year.
The TMB analytic team said while planning to maintain the interest rate to underpin economic momentum, the MPC faces no inflation pressure. Headline inflation was 1.83 per cent last month, which was a slight increase from 1.81 in July, but the number is still in the middle of the central bank’s target range of 0.5-3 per cent.
If the economy recovery continues and picks up speed next year, TMB Analytics expects the MPC to increase the benchmark interest rate by the second half of 2015.
Apichat Wisitkitchakarn, an economist at Tisco Financial Group, believes the authorities will keep an eye on key economic indicators in February next year before hiking the rate at their March meeting by 0.25bps if economic growth is along the lines of the central bank’s projection of robust expansion at 5.5 per cent for 2015.
