Thai central bank keeps key interest rate unchanged

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The Bank of Thailand’s Monetary Policy Committee (MPC) voted unanimously last week to maintain the policy interest rate unchanged at 2.5 percent with immediate effect, reasoning it was a necessary response to slowdowns in domestic demand and exports.

“The growth of the Thai economy has been moderate due to a slowdown in domestic demand and exports. Private consumption softened, as consumers exercised more caution partly as a result of the rising debt burden, coupled with waning government consumption stimulus measures,” the MPC said in a statement.

“Exports decelerated from domestic supply constraints as well as China’s slowdown. Weak domestic and external demands in turn caused further delays in private investment. Inflationary pressures eased from softening domestic demand and lower production costs,” it said.

The MPC judged that the slowdown in domestic demand was partly an adjustment from the previous extraordinary growth induced by government stimulus measures, and thus should resume its normal growth path in the periods ahead.

Prevailing domestic environment remains supportive of a recovery of private spending, including sound underlying fundamentals such as high employment and income, and accommodative monetary and fiscal policies as reflected in continued private credit growth and fiscal deficits.

Bank of Thailand assistant governor and MPC secretary Paiboon Kittisrikangwan said the committee saw signs of economic slowdown, and had therefore cut the benchmark rate by 0.25 percent at the last meeting.

The current rate is seen as appropriate to the economic conditions, he said.

Paiboon, however, stopped short of saying whether the MPC will keep the rate unchanged until the end of the year, adding that it depends on internal and external factors. In addition, it remains to be seen how long the government’s investment project will be delayed. He advised that the government should shift its focus from domestic demand and consumption stimuli to production sector efficiency.

The MPC is scheduled to announce this year’s revised growth forecast July 19. The committee basically shares similar views with other agencies which have lowered the growth forecast below 5 percent given that Thailand faces a labor shortage that will adversely affect private investment expansion, the senior BoT official said.

He also said that the next monetary policy meeting will consider the global economy, fund flows, and the baht movement in its latest economic update.