BoT on hold and signalling greater comfort with THB

The Bank of Thailand kept its policy rate unchanged at 1.50%, as was widely expected, in the first unanimous decision since September last year. This followed the first back-to-back easing in policy in March and April since the period following 2011's floods. The overall tone of the statement was less dovish than at the 29 April policy meeting, with the MPC signalling greater comfort with the THB following the 4.5% depreciation on a real effective basis since March, but nonetheless stating that it would stand ready to use the available policy space to support the recovery going forward if needed, says Barclays. This was broadly consistent with the tone of recent commentary from MPC members. 

On inflation, the MPC continued to refer to the drag from weak demand - carried over from the April MPC - but it added that it believes the risk of deflation remains low. Its outlook for growth was broadly unchanged from April, with a continued gradual recovery expected, amid downside risks stemming from a slow recovery in China and other Asian economies.

According to Barclays, "the statement points to a reduced risk of near-term rate cuts, and as a base case, the BoT will keep policy on hold from here. However, the MPC has sent a clear signal that it stands ready to respond should growth fail to pick up, or if the THB resumes its appreciation. While a near-term recovery in fiscal spending should be supportive, the structural factors weighing on spending in the medium term are unlikely to be resolved soon. In the absence of this, and given the continued decline in inflation, the space for further accommodation remains".