Thai central bank leaves key rate alone, sees higher risks to economic growth

Bangkok

THAILAND'S central bank kept its key interest rate unchanged on Wednesday, as expected, saying current monetary policy still supports the country's economic recovery.

The Monetary Policy Committee (MPC) voted unanimously to leave the one-day repurchase rate at 1.5 per cent, where it has been since April 2015, a quarter-point above the record low.

"Overall monetary conditions remained accommodative and conducive to the economic recovery," the MPC said. "Nonetheless, the baht appreciated against some major currencies over the recent period, which might not be beneficial to the ongoing economic recovery."

However, assistant governor Jaturong Jantarangs told reporters that the Bank of Thailand (BOT) has tools to keep the baht at an appropriate level, without having to use only interest rates.

All but one of 19 economists polled by Reuters predicted no policy change at the meeting held days before Thailand's referendum on a new constitution and the Aug 15 announcement of second-quarter gross domestic product data.

The Aug 7 referendum should not have any short-term impact on the economy, Mr Jaturong said.

The referendum is a major step for the junta, which took power in May 2014, as it tries to shape politics after a decade of tensions in South-east Asia's second-biggest economy.

Krystal Tan, economist at Capital Economics in Singapore, said that she expects growth to slow in the second half, and sees scope for a rate cut in coming months.

She said that the referendum "is more likely to enflame rather than soothe political tensions". "The associated increase in political uncertainty will in turn undermine investment and confidence."

Jack Chambers, economist at Moody's Analytics in Sydney, expects a 25 basis point cut by end-2016 as growth continues to be "below potential".

The BOT said that headline inflation might return to the target band later than expected. Benign consumer prices helped give policymakers leeway to keep rates low.

The central bank said that the economy could still grow as forecast this year but downside risks have increased. It has predicted GDP growth of 3.1 per cent this year, with exports contracting for a fourth year, by 2.5 per cent. The economy expanded 2.8 per cent last year.

The BOT has forecast higher second-quarter GDP growth than January-March's 3.2 per cent expansion from a year earlier.

The junta has struggled to revive the economy as exports and domestic demand are weak. It has introduced stimulus measures and ramped up investment in a bid to lift domestic activity. REUTERS