Bank of Thailand shifts focus to tackling baht rally, keeps key rate

Bangkok

THE Bank of Thailand signalled it will focus on tackling a rally in the nation's currency, while keeping its benchmark interest rate unchanged for a fourth straight meeting to save limited policy space.

The bank's Monetary Policy Committee (MPC) "expressed concerns over the rapid appreciation of the baht as this affected the fragile economic recovery," it said after its meeting on Wednesday, adding that it will hold a briefing on Friday on measures to address the issue. The currency dropped as much as 0.6 per cent against the US dollar after the statement.

The MPC will also "closely monitor developments in foreign exchange markets and capital flows as well as consider the necessity of implementing additional appropriate measures," it said.

Thailand's economy has shown some encouraging signs as its decline in gross domestic product slowed last quarter, beating estimates. Still, ongoing political protests and a stronger currency are weighing on the economy, adding to the case for the central bank to keep some policy space available to use when needed.

The central bank held its key rate at 0.5 per cent in a unanimous decision, saying it's prepared to use additional monetary tools if necessary. All 20 economists in a Bloomberg survey predicted the hold, which came after the bank cut rates by 75 basis points earlier this year.

The committee "assessed that despite the recent better-than-expected outturn, the Thai economy would recover slowly and need support from the continued low policy rate," it said. "The committee thus voted to maintain the policy rate at this meeting and to preserve the limited policy space in order to act at the appropriate and most effective timing."

The baht trimmed its gain against the US dollar over the past month to 2.9 per cent after the announcement. Bank of Thailand Assistant Governor Titanun Mallikamas on Wednesday attributed the recent strength to risk-on flows into emerging markets.

The government has wanted the central bank to temper the baht's recent rally as it threatens exports. Thai Finance Minister Arkhom Termipittayapaisith said on Monday he'd discuss with the central bank possible measures to restrain the currency.

Briefing reporters after the decision, Mr Titanun said Wednesday's meeting focused on three key issues:

"The briefing this Friday on how to tame the baht strength is new and unheard of," said Howie Lee, economist at Oversea-Chinese Banking Corp in Singapore. "Baht traders may be expecting reasonably strong measures out of Friday and the baht is reacting ahead of that meeting."

The central bank said fiscal policy remains key to reviving the economy, a point it has been at pains to stress in recent weeks. Well-targeted policies and coordination across government agencies will be key to boosting the recovery, the bank said.

The government should "accelerate budget disbursement and assist the vulnerable target groups," the bank said in its decision statement. "In addition, implementation of supply-side policies should be accelerated to support business restructuring and upskilling of labour, which would help support sustainable economic recovery in the long term." BLOOMBERG