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Thailand holds rate, raises economic growth forecast
Thailand's central bank left its policy rate at 1.50 percent as it maintained accommodative financial conditions despite improving economic activity and rising inflation due to considerable uncertainty about the global economy and monetary policy in advanced economies.
The decision by the Bank of Thailand (BOT) was widely expected and the central bank has now kept the rate steady since April 2015.
In an update to its forecast, the BOT raised its 2017 economic growth forecast to 3.4 percent from December's forecast of 3.2 percent due to stronger exports. Growth in 2016 was 3.2 percent.
Inflation is expected to gradually rise toward the BOT's target but lower-than-expected oil prices will result in slightly lower inflation.
The BOT trimmed its forecast for 2017 headline inflation to 1.2 percent from 1.5 percent, and core inflation is seen at 0.7 percent from 0.8 percent.
Thailand's headline inflation rate eased to 1.44 percent in February from 1.55 percent in January, within the BOT's target range of 1.0 to 4.0 percent around a 2.5 percent midpoint.
For 2018 the BOT expects growth to improve further to 3.6 percent as domestic spending and exports rise while headline inflation rises to 1.9 percent and core inflation of 1.0 percent.
As in February, the BOT noted the rise in the baht's exchange rate this year, saying this appreciation “might not be as beneficial to the economy as its could.”
The baht fell sharply from the “taper tantrum” of April 2013 to September 2015 but since then it has been slowly appreciating, especially this year.
The BOT also said exchange rates could see higher volatility due to global uncertainties.
The bath was trading at 34.4 to the U.S. dollar today, up 4 percent this year.
The Bank of Thailand issued the following statement:
In deliberating their policy decision, the Committee assessed that Thailand’s growth outlook improved and that the economy would expand at a faster pace than the previous assessment. Meanwhile, headline inflation was expected to gradually rise. Nonetheless, the Thai economy still faced many risks, particularly on the external front. Hence, the Committee decided to keep the policy rate on hold at this meeting in order to maintain accommodative financial conditions which would facilitate the continuation of economic growth.
The overall growth outlook improved on the back of a clearer recovery in merchandise exports. Meanwhile, tourism continued to recover, and public expenditure remained an important growth driver. Private consumption and investment, however, continued to recover at a gradual pace. Additionally, the improved growth outlook was still subject to risks that warranted close monitoring. These included the outturns of the US economic and foreign trade policies, financial stability concerns in China, political developments in Europe, and problems faced by the European banking sector.
Headline inflation was expected to gradually rise, although demand-pull inflationary pressures remained low. Meanwhile, the public’s medium-term inflation expectations remained close to the target. Nevertheless, headline inflation might fluctuate in the near- term due to base effects, and would face increased downside risks from developments in global oil prices. Core inflation slowed down recently, in part due to the increase in excise tax last year, but was expected to gradually increase.
Overall financial conditions remained accommodative and conducive to economic growth with ample liquidity in the financial system and low real interest rates. However, the baht appreciated somewhat against major trading partners’ currencies over the recent period which might not be as beneficial to the economy as it could. Under the Committee’s view, exchange rates might experience higher volatility in the period ahead due to uncertainties on the external front.
The Committee viewed that financial stability remained sound with sufficient cushion against economic and financial volatilities on both domestic and external fronts. However, there remained pockets of risks that warranted close monitoring such as the deterioration in loan quality of some business sectors, and the search-for-yield behavior in the prolonged low interest rate environment which might lead to the underpricing of risks.
Looking ahead, the Thai economic recovery continued to gain traction but considerable uncertainties remained, particularly those pertaining to the global economic recovery and to the economic and monetary policy directions of major advanced economies. Meanwhile, demand-pull inflationary pressures remained low. Thus, the Committee viewed that monetary policy should remain accommodative, and would stand ready to utilize an appropriate mix of available policy tools in order to ensure that monetary conditions are conducive to the continuation of economic growth, while ensuring financial stability.”
www.CentralBankNews.info
Source: http://www.centralbanknews.info/2017/03/thailand-holds-rate-raises-economic.html
