Thai central bank retains key rate, revises down 2019 growth outlook

27, Jun. 2019

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BANGKOK, NNA – Thailand’s central bank left its key interest rate unchanged at 1.75 percent on Wednesday, as widely expected by economists, seeking to curb the risk of rising debt in the financial market while inflation is expected to remain within its target range.

The Bank of Thailand revised down the nation’s annual GDP growth forecast for 2019, mainly due to a slump in exports on weak global demand, caused by the protracted U.S.-China trade spat.

Key points:

―― The central bank’s Monetary Policy Committee voted unanimously to hold the repo rate at 1.75 percent for the fourth time this year after tightening by 25 basis points in December, the first hike since 2011, to curb excessive borrowing.

―― The committee “viewed that the current accommodative monetary policy stance contributed to the continuation of economic growth and was appropriate given the inflation target,” the central bank said in a statement.

―― The BoT said that inflation would remain within the target range of 1 to 4 percent. Although it expects fresh-food price increases to accelerate, “structural changes,” such as the expansion of e-commerce and rising price competition as well as reduced costs of production led by technological development, have contributed to milder inflation than in the past.

―― The central bank said it will continue to monitor excessive borrowing, which could harm financial stability in the future, and asserted the need “to address financial stability risks through a combination of tools, including the appropriate policy rate as well as microprudential and macroprudential measures,” according to the statement.

―― The BoT also said it would keep an eye on external factors, including the U.S.-China trade tension and China’s economic performance as it projected “merchandize exports would grow at a significantly slower pace than the previous assessment due to the slowdown of the trading partner economies and global trade.” The central bank will also monitor domestic affairs, namely the new government’s policy implementation and development in major infrastructure projects.

―― Private consumption is likely to be restrained by elevated household debt, with signs of moderation in earnings and employment in the export-related manufacturing sectors, it said.

―― Private investment is projected to slow down, but the relocation of production bases to Thailand and public-private partnership projects for infrastructure investment will support investment, the central bank said.

―― Regarding the appreciation of the baht, the BoT expects the currency to remain volatile due to both domestic and external uncertainties. The committee will “continue to closely monitor exchange rate developments and capital inflows.”

Takeaways:

―― The central bank trimmed its annual GDP growth forecast for 2019 to 3.3 percent from the previous outlook of 3.8 percent in March, citing slowed exports from dampening external demand.

―― In its statement referring to the prospects for the Thai economy in 2019, the committee replaced the phrase “will continue to gain traction” with “will expand at a slower pace” for the first time in reports released this year.

―― For exports and tourism, the two main drivers of the Thai economy, the central bank also lowered its annual export growth forecast to zero from 3 percent. It also stated for the first time this year that tourism will grow at a slower rate than previously assessed due mainly to a decline in the number of Chinese tourists.

―― The BoT trimmed 2020’s GDP growth forecast to 3.7 percent from 3.9 percent, but increased the year’s export growth forecast to 4.3 percent from 4.1 percent.