The Bank of Thailand kept its key interest rate on hold at 1.50 percent today, as was expected. Out of seven MPC members, three had voted to raise the interest rate. The recent run of weaker than expected data might have stayed the BoT’s hand. Inflation slowed in the month of October, while many real activity indicators softened at the end of third quarter, noted ANZ in a research report.
The overall picture though is that the economy continues to be in sound health. Markedly, in a post-policy media briefing, Assistant Governor Titanum Mallikamas noted that “the economy has gained traction so the need to keep the rat very low for a long time has reduced”.
The policy messaging also continued to hint at worries regarding risks to financial stability. In its accompanying statement, the Thai central bank repeated that “there remained a need to monitor risks that might pose vulnerabilities to financial stability in the future, especially the search-for-yield behaviour in the prolonged low interest rate environment that might lead to under-pricing of risks.”
While the Bank of Thailand recently announced tighter mortgage lending rules effective April 2019, these measures could address risks in the property sector. If the central bank is interested in curtailing wide risk-taking, interest rate hikes would be required.
“Overall, the BoT still appears to be moving in the direction of policy normalisation. A 25bp hike in the policy rate at the BoT’s next meeting in December looks to be on the cards”, added ANZ.
