Statement by the Bank of Thailand:
In deliberating their policy decision, the Committee assessed that Thailand’s growth outlook improved and that the economy would expand at a faster pace than the previous assessment. Meanwhile, headline inflation was expected to gradually rise. Nonetheless, the Thai economy still faced many risks, particularly on the external front. Hence, the Committee decided to keep the policy rate on hold at this meeting in order to maintain accommodative financial conditions which would facilitate the continuation of economic growth.
The overall growth outlook improved on the back of a clearer recovery in merchandise exports. Meanwhile, tourism continued to recover, and public expenditure remained an important growth driver. Private consumption and investment, however, continued to recover at a gradual pace. Additionally, the improved growth outlook was still subject to risks that warranted close monitoring. These included the outturns of the US economic and foreign trade policies, financial stability concerns in China, political developments in Europe, and problems faced by the European banking sector.
Headline inflation was expected to gradually rise, although demand-pull inflationary pressures remained low. Meanwhile, the public’s medium-term inflation expectations remained close to the target. Nevertheless, headline inflation might fluctuate in the nearterm due to base effects, and would face increased downside risks from developments in global oil prices. Core inflation slowed down recently, in part due to the increase in excise tax last year, but was expected to gradually increase.
Overall financial conditions remained accommodative and conducive to economic growth with ample liquidity in the financial system and low real interest rates. However, the baht appreciated somewhat against major trading partners’ currencies over the recent period which might not be as beneficial to the economy as it could. Under the Committee’s view, exchange rates might experience higher volatility in the period ahead due to uncertainties on the external front.
The Committee viewed that financial stability remained sound with sufficient cushion against economic and financial volatilities on both domestic and external fronts. However, there remained pockets of risks that warranted close monitoring such as the deterioration in loan quality of some business sectors, and the search-for-yield behavior in the prolonged low interest rate environment which might lead to the underpricing of risks.
Looking ahead, the Thai economic recovery continued to gain traction but considerable uncertainties remained, particularly those pertaining to the global economic recovery and to the economic and monetary policy directions of major advanced economies. Meanwhile, demand-pull inflationary pressures remained low. Thus, the Committee viewed that monetary policy should remain accommodative, and would stand ready to utilize an appropriate mix of available policy tools in order to ensure that monetary conditions are conducive to the continuation of economic growth, while ensuring financial stability.