Negatives Outweigh The Positives For Thailand’s Economy
Thailand’s central bank kept its benchmark interest rate unchanged for a 3rd straight meeting, putting the onus on government spending to support the economic recovery as the Baht falls with higher US interest rates looming.
The Bank of Thailand held its 1-day bond repurchase rate at 1.5% in a unanimous decision, it said in Bangkok Wednesday.
“The risk is that the BOT’s ability to ease is constrained by the recent market volatility,” Weiwen Ng, a Singapore-based economist at Australia & New Zealand Banking Group Ltd., said in an interview after the decision.
“The weak Baht has acted as additional monetary easing, so there is no need to cut the rate further now,” Thammarat Kittisiripat, a Bangkok-based economist at KT Zmico Securities, said before the decision. “Fiscal policy is also stepping in to take the lead role, so the central bank may prefer to stay on the sidelines.”
The Baht lost 0.1% to 35.980 Vs the USD as of 3:03 p local time Wednesday. The currency has weakened more than 8% in the last 6 months, Asia’s worst performer after Malaysia’s Ringgit. The benchmark SET Index of stocks rose 0.4% after the announcement, extending earlier gains.
Thailand’s central bank wants the Baht to move in line with emerging-market currencies, Assistant Governor Mathee Supapongse said at a media briefing Wednesday. The exchange rate has weakened recently mainly because of external factors such as China’s slowdown and US rate expectations and the Bank of Thailand will step in to smooth volatility if necessary, he said.
GDP will expand less than 3% this year, Mr. Mathee said. While negative factors are still outweighing the positive for Thailand’s economy, the deflation risk is limited because core inflation is still positive, he said, predicting headline inflation will turn positive in Q-1.
“Looking forward, the monetary policy stance should continue to be sufficiently accommodative,” he said. “Thailand’s current accommodative monetary policy already helps support economic recovery. The new economic measures should also help.”
Stay tuned…
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Paul Ebeling
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