BoT likely to keep interest rate unchanged, set to maintain dovish tone

The Bank of Thailand is expected to keep its key interest rate unchanged at its monetary policy meeting scheduled to be held on Sep 14. However, the central bank is scheduled to maintain a dovish tone for the near term.

There is a good chance that the central bank may revise its GDP growth projections lower, either this time or at the next policy meeting. The high-frequency data suggests no significant rebound in domestic demand as yet.

The latest BoT survey continues to show private investment running sideways while private consumption might have moderated again in 3Q16. Taking away the public sector, annual GDP growth continues to trend circa 2.5 percent.

The other notable message concerns export growth and the baht. Exports of merchandise goods are set to contract again this year, and our current forecast is penciling a 1.5 percent fall. If true, this will be the fourth consecutive year of decline. Going by recent comments by the BoT, this is clearly something that is disconcerting.

The BoT is likely to prefer a softer currency to support export growth. Yet, current account surplus is likely to be in excess of 10 percent of GDP this year and continues to lend strong support to the baht. Arguably, this poses a risk of another rate cut by the BoT, as the central bank continues to find ways to facilitate a weaker baht, DBS reported.