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Thailand holds key rate, stays wary of global risks

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Thailand's central bank on Wednesday left its key interest rate where it has been for more than two years - and it could stay there for quite some time, as there's no incentive to cut and no need to raise it.

[BANGKOK] Thailand's central bank on Wednesday left its key interest rate where it has been for more than two years - and it could stay there for quite some time, as there's no incentive to cut and no need to raise it.

The Bank of Thailand's Monetary Policy Committee voted unanimously to keep the one-day repurchase rate at 1.50 per cent, where it has been since April 2015.

"The Thai economy's growth outlook improved further despite uncertainties on the external front. Meanwhile, demand-pull inflationary pressures remained low," the MPC said.

"Thus, the committee viewed that monetary policy should remain accommodative, and would stand ready to utilize available policy tools to sustain economic growth while also ensuring financial stability." Thai rates will likely stay on a "prolonged hold", said Krystal Tan, Asia economist of Capital Economics.

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"The ongoing economic recovery means there is no need for rate cuts... Equally, there is no strong impetus for rate hikes either," she said.

The central bank is counting on government spending to keep the economy growing at a time of high household debt levels and risks of capital outflows as the US Federal Reserve plans more rate hikes this year.

The improved growth outlook was still subject to risks including "US economic and foreign trade policies, China's economic structural reforms, and geopolitical risks," the MPC said.

All 19 economists polled by Reuters forecast no policy change on Wednesday. Most analysts expect the rates to hold through 2017 but some predicted a rate hike.

In January-March, Southeast Asia's second-largest economy grew at its fastest quarterly pace in four years, but it has still lagged regional peers for years. Domestic demand remains sluggish and exports are just recovering.

The junta has ramped up spending to lift activity, but big-ticket infrastructure projects have been slow to kick in.

Annual headline inflation in April was 0.38 per cent, compared with the BOT target of 1-4 per cent.

The central bank has forecast economic growth of 3.4 per cent this year, after 3.2 per cent last year. It will update its forecasts on July 5.

The BOT said recent moves in the baht remain in line with regional currencies.

The baht traded at 34.42 per dollar on Wednesday. It has appreciated about 4 per cent against the dollar this year.

Last month, Governor Veerathai Santiprabhob said the BOT was ready to act on any excessive baht moves and would relax previously-announced rules on capital outflows.

The BOT has cut the size of its weekly short-dated bond supply since April to try to slow foreign inflows. It will continue doing so, an official said on Wednesday.

The central bank has forecast 3.4 per cent economic growth this year, after 3.2 per cent last year.

REUTERS

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