Thai central bank to keep interest rate fixed until next year to help boost economy

File photo of a bank cashier counting Thai baht notes in a bank in Bangkok. — AFP pic
File photo of a bank cashier counting Thai baht notes in a bank in Bangkok. — AFP pic

BANGKOK, Nov 4 — Thailand’s central bank is expected to leave its main interest rate steady for a fifth straight meeting tomorrow, and possibly well into next year, to help the sputtering economy recover from months of political unrest.

All 19 economists polled by Reuters expect the Bank of Thailand’s monetary policy committee (MPC) to leave the policy rate steady at 2 per cent tomorrow and at its meeting in December, the last review of the year.

And most economists expect the next move to be a rate increase, from mid-2015.

“We continue to expect the BOT to keep monetary policy steady for the rest of the year to support the fragile recovery in the Thai economy,” said Bernard Aw, an economist with Forecast Pte. in Singapore. “We anticipate interest rates to normalise next year as domestic economic conditions strengthen.”

The central bank’s one-day repurchase rate has been at 2 per cent since March, when it was cut by 25 basis points to help businesses cope with the turmoil. The army seized power in a May coup, saying it needed to restore order and get Southeast Asia’s second-largest economy moving again.

The BOT has forecast economic growth of 1.5 per cent this year, recovering from a first-half contraction. But that would still be the worst growth since 2011, when devastating flooding slashed growth to 0.1 per cent.

With inflation hovering at a one-year low of 1.48 per cent in October, the BOT has leeway to hold the policy rate down to aid the fragile economy while household debt levels are high.

Four new, non-central bankers will preside over the meeting tomorrow - Veerathai Santiprabhob, member of the State Enterprise Policy Commission; Porametee Vimolsiri, deputy secretary-general of the National Economic and Social Development Board; Jamlong Atikul, former president of Bank of Ayudhya; and Sethaput Suthiwart-Narueput, former chief economist of Siam Commercial Bank.

“The presence of new members is likely to result in a fresh train of thought within the committee,” HSBC said in a report. The MPC comprises the central bank governor and two deputies, plus four outside experts who rotate every three years.

Economy seem improving

At the last review in September, the MPC unanimously voted to hold the rate, saying the current policy rate was appropriate for the economic recovery and long-term financial stability.

While expecting no policy change, Barclays economist Rahul Bajoria noted the risk of another rate cut had risen, given the decline in fuel prices and the slow economic recovery.

The economy avoided a technical recession in April-June but still shrank 0.1 per cent in the first half due to the political unrest and poor exports. Recent data shows the recovery has not been broad based, with annual exports unexpectedly rising in September but factory output and car sales still falling.

Soft global demand and lower commodity prices have hurt Thai shipments, while private consumption, which makes up half of the economy, remains weak as households are heavily indebted.

Economists and the military government expect stronger growth next year, largely due to pump-priming initiatives.

“GDP growth is likely to return to around 4 per cent in 2015, from a projected 1.6 per cent this year,” said economist Gundy Cahyadi of DBS Bank in Singapore. “This may seem decent but it is still below the 5.0-5.5 per cent potential that the economy seems capable of.”

The central bank has forecast GDP growth of 4.8 per cent for next year, compared with the Finance Ministry’s 4.1 per cent.

Yesterday, Deputy Prime Minister Pridiyathorn Devakula reiterated that the economy could grow 4 or even 5 per cent in 2015. “Next year, it’s easy to get 4 per cent growth as the government starts investment projects and recent stimulus measures will start to bear fruit in December,” he said.

Last month, the junta announced measures worth 364 billion baht (US$11.2 billion), focusing on creating jobs and helping farmers. — Reuters