Thailand: BoT holds rate steady, upgrades forecast
At its 20 June meeting, the Monetary Policy Committee of the Bank of Thailand (BoT) voted 5 to 1 to maintain the one-day repurchase rate at 1.50%, where it has been for over three years. The decision was in line with market expectations.
According to the Committee, economic growth is gaining steam faster than previously expected, propelled by robust foreign demand and a pick-up in domestic demand. Strong merchandise exports and a healthy influx of tourists are buoying the external sector. On the domestic front, however, the Committee again noted that the ongoing improvement in the economy has failed to translate into notably higher household incomes. Nonetheless, Q1’s robust expansion was stronger than expected, and the Bank now pencils in higher GDP growth of 4.4% in 2018 and 4.2% in 2019 (March monetary policy report: +4.1% in both 2018 and 2019).
Inflationary pressures are furthermore building, driven by higher oil prices. Inflation in May came in at 1.5% (April: 1.1%), which was comfortably within the Bank’s target range of 1.0%–4.0%. In response, the BoT upgraded the headline inflation forecast to 1.1% in 2018 from its previous projection of 1.0% and left the 2019 forecast unchanged at 1.2%. However, in the Bank’s view the risks to inflation remain tilted to the downside.
In terms of forward-looking guidance, the BoT stressed that monetary policy is likely to remain accommodative. The Committee stated that monetary policy “remained conducive to the continuation of economic growth” and should continue to support a sustainable rise in inflation. That said, the Bank noted that its policy is subject to change depending on developments in domestic demand and inflation. All told, the BoT has more breathing room for accommodative policy compared to other emerging market counterparts. Thailand has been resilient to the effects of global tightening thanks to solid foreign reserves, a current account surplus and continued capital inflows. With that in mind, nearly all FocusEconomics panelists expect the Bank to stand pat until the end of 2018.
The next monetary policy meeting will be held on 8 August.