Backers of a Thai rate hold worried about imbalances, high household debt

[BANGKOK] Three members of the Thai central bank's monetary policy committee who voted unsuccessfully to keep rates unchanged this month were worried that further easing could create financial risks while doing little to spur growth, minutes of the meeting showed on Wednesday.

The military seized power in a coup last May to end months of street protests but the economy has yet to gain traction.

On March 11, the committee unexpectedly cut the Bank of Thailand's one-day repurchase rate by 25 basis points to 1.75 per cent to shore up confidence.

But the vote was a close 4-3 for a cut. That meant two members changed their minds since a 5-2 vote for a hold at January's meeting, and suggested policymakers are struggling with the need to spur sluggish growth amid high household debt levels.

The last time the committee split 4-3 was in March 2014, when there was a quarter-point cut to help business cope with political unrest.

The three dissenters this month said the current rate was already supportive of the economic recovery and that policy space "should be preserved as a shock absorber", to be used if necessary.

They said further easing could create more financial imbalances via increased household indebtedness, affecting financial stability and depressing national savings in the long run. "Further monetary policy easing would likely have a limited impact on growth given that private consumption had been restrained by elevated household debt burden and businesses had postponed new investment," they said.

The committee agreed that the country's economic recovery was weaker than previously expected and that fiscal stimulus would take time to materialise, the minutes said. "Private sector confidence had deteriorated, and headline inflation was expected to remain low for a certain period of time," the minutes said.

At the March meeting, the committee cut its economic growth forecast for this year to 3.8 percent from 4.0 per cent, while the Asian Development Bank this week forecast 3.6 per cent growth.

Last year, Southeast Asia's second-largest grew only 0.7 per cent, its weakest pace since devastating flooding in 2011.

REUTERS