Bank of Thailand keeps key policy rate on hold

The Bank of Thailand kept its key policy rate on hold at 1.75 percent today, as was anticipated. The decision to stand pat was unanimous, with all seven monetary policy committee members voting for a hold, compared to two votes for a hike in February. Today’s decision was the second straight decision of keeping rate on hold.

The Thai central bank also revised its 2019 growth and core inflation forecasts. The BoT expects GDP growth of 3.8 percent and export growth of 3 percent. It lowered the core inflation forecast as well to 0.8 percent, but kept the headline inflation forecast at 1 percent, which is at the bottom end of its 1-4 percent target band. For 2020, the BoT expects growth of 3.9 percent, headline inflation of 1.1 percent and core rate of 0.9 percent.

The downward revisions was not a surprise. Domestic demand indicators have weakened, while goods exports are struggling, note ANZ in a research report. Data on the tourism sector released today were also disappointing, with arrivals rising only 0.2 percent year-on-year in February. In the meantime, inflationary pressures are soft- headline inflation averaged only 0.50 percent year-to-date, below the central bank’s 1-4 percent target band. Core inflation has also been soft.

The Bank of Thailand reiterated in its monetary policy statement that financial stability risks still bear monitoring, but removed the emphasis on “the search-for-yield behaviour amid the low interest rate environment that might lead to underpricing of risks”.

“Putting all of this together, the combination of a less hawkish BoT, rising growth risks, benign inflation, and easing financial stability concerns sets the stage for a prolonged rate hold”, added ANZ.