Bank of Thailand keeps policy rate on hold at 1.5 pct, likely to commence tightening in Q4

The Bank of Thailand kept its key interest rate on hold today at 1.5 percent. While the BoT’s statements indicate that monetary policy should remain accommodative, the upward revisions in growth and inflation forecasts imply that the window to keep its policy rate on hold is closing, noted ANZ in a research report.

BoT indicated that monetary policy should stay accommodative. Yet the upward revisions in both the 2018 and 2019 GDP growth forecasts to 4.4 percent and 4.2 percent respectively imply that policymakers expect further acceleration to growth that is already well above the 10-year growth trend.

In the meantime, the 2018 inflation forecast was risen to 1.1 percent from 1 percent. The BoT expects a gradual rebound in core inflation, though it continues to be watchful of structural changes that might add to the persistence of weak prints.

The conditions for policy normalization are possibly falling into place, noted ANZ. In the first quarter, the economic growth reached 4.8 percent. The growth drivers are widening, with private investment gathering rate. Higher frequency data indicates to an extension of growth momentum into the second quarter, stated ANZ. The modest rise in inflation, which marked its second straight month to remain in the BoT’s inflation target, has opened the space for gradual policy normalization.

“We now expect the central bank to commence tightening with a 25bps hike by Q4 2018”, added ANZ.

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