Thai central bank holds key rate, sees higher risks to growth

[BANGKOK] Thailand's central bank kept its key interest rate unchanged on Wednesday, as expected, saying the current monetary policy remained conducive to economic recovery.

The Monetary Policy Committee (MPC) voted unanimously to leave the one-day repurchase rate at 1.50 per cent, where it has been since April 2015, and a quarter point above the record low during the global financial crisis.

"The committee judged that the Thai economy would continue to expand at a rate close to the previous assessment but face greater downside risks on the domestic front," the MPC said. "Current monetary conditions eased further as bond yields remained low, and commercial bank lending rates declined," it said.

"Therefore, the policy rate should be kept on hold to preserve policy space." Bank of Thailand Assistant Governor Jaturong Jantarangs said that cutting the policy rate alone "won't help increase consumption and investment because monetary policy is not an impediment to that".

All but one of 21 economists polled by Reuters predicted the rate hold, as benign consumer prices gives policymakers leeway to keep rates low.

Deflation finally ended as annual headline consumer prices in April rose for the first time in 16 months although the gain was tiny.

Headline consumer prices would gradually rise as the base effect of high oil prices waned, the MPC said.

SAVING THE BULLET

"The MPC will think about saving the bullet for later if need be," said Charnon Boonnuch, senior economist at Tisco Securities. "We see no policy change this year." However, some still expect a rate cut. Jack Chambers, senior economist of Moody's Analytics in Sydney, predicted one by the end of the second quarter.

Uncertainty stemming from Thailand's coming constitutional referendum may crimp domestic demand further, he added.

Although an army coup in May 2014 ended months of political unrest, the junta has struggled to revive Southeast Asia's second-largest economy. Exports and domestic demand remain weak, the latter due to high household debt, low farms prices and drought.

The junta has introduced stimulus measures as well as stepped up spending and investment plans in a bid to lift growth, although big infrastructure projects have been slow to get started.

The BOT forecast economic growth of 3.1 per cent this year. Growth last year was 2.8 per cent.

Consumer confidence hit a seven-month low in April, according to a university's index, while car sales have yet to recover after three years of contraction.

REUTERS