Thailand: BoT stands pat in August
At the Monetary Policy Committee meeting of the Bank of Thailand (BoT), which was held on 8 August, the committee voted six-to-one to maintain the one-day repurchase rate at 1.50%. The rate has been held at this level for over three years, and the decision was in line with market expectations. One member of the committee voted to raise the rate by 25 basis points to 1.75%, arguing that economic growth has been sufficiently robust and that the continuation of loose monetary policy could undermine financial stability and threaten economic growth over the longer term.
However, the majority of the committee justified the decision on the basis of the ongoing improvements in the Thai economy, driven by both the domestic economy and the external sector. Domestically, the economy has been supported by robust growth in private consumption on the back of improvements in employment. However, the Bank also noted that purchasing power was recovering only gradually “due to elevated household debt”. Government expenditure is further expected to drive growth, but the committee warned that “there remained risks of delayed budget disbursement”.
The external sector has been spearheaded by tourism and merchandise exports, which grew at a double-digit pace in the first half of the year and a notch above the pace recorded in the same period last year, despite growing headwinds in international trade due to policy uncertainty and a looming trade war between the United States and China. However, geopolitical uncertainty continues to be a significant risk to the outlook, and the Bank specifically noted U.S. trade policies and potential retaliatory measures from its trading partners as downside risks.
The Bank’s assessment on the inflation outlook was little changed, with the Bank expecting average inflation to be within the target range of 1.0%–4.0%. In the first seven months of the year, inflation averaged 1.0%. However, weather conditions presented a downside risk to inflationary pressures, as they could sharply affect fresh food prices and agricultural output.
In terms of forward-looking guidance, the Bank of Thailand is not expected to significantly alter its course, as the committee “viewed that monetary policy should remain accommodative”. The domestic economy and the external sector should continue to drive growth, but risks to the outlook are mounting due to an increasingly uncertain global trade order and monetary policy changes in advances economies. Both developments increase exchange rate volatility, with the Bank noting that “the baht would likely remain volatile”. Thanks to the country’s large international reserves and double-digit current account surplus, Thailand has not been hit as hard as other emerging countries by the exchange rate volatility. As a result, the Bank of Thailand has been able to refrain from hiking rates in the wake of monetary policy normalization in the United States.
In its press release, the Bank stated it will closely monitor exchange rate movements and the impact on the Thai economy, as well as the strength of domestic demand and inflationary pressures. With that in mind, the FocusEconomics panel is split on the future trajectory of the Bank’s monetary policy, with 11 panelists expecting at least one rate hike before the end of the year and 13 panelists expecting the Bank to hold its fire this year.
The next monetary policy meeting is scheduled for 19 September.