Statement by the Bank of Thailand:
The Thai economy as a whole continued to gain further traction, driven by merchandise exports and tourism which continued to improve in tandem with global economic growth, and by stronger momentum from domestic demand. In particular, private consumption continued to expand, although elevated household debt and the economic expansion had yet to benefit household income and employment in a broad-based manner, resulting in a gradual improvement in purchasing power. In the Committee’s view, these issues must be addressed through structural policies. Private investment was projected to continue expanding with additional support from public investment projects whose prospects became more certain, although their progress in the period ahead must be monitored. Meanwhile, public expenditure would be a driver of growth but there remained risks of delays in budget disbursement. Furthermore, Thailand’s growth outlook was still subject to external risks that continued to warrant monitoring, especially US foreign trade policies and retaliatory measures from trading partners of the US, and geopolitical risks.
Headline inflation was projected to rise at a slightly faster pace than previously assessed toward target on the back of increases in oil prices. Core inflation was projected to edge up given gradual build-up in demand-pull inflationary pressures. Moreover, structural changes, such as an expansion of e-commerce and rising price competition, still warranted monitoring as they might contribute to more persistent inflation than in the past. Meanwhile, the public’s inflation expectations were largely unchanged.
Overall financial conditions remained accommodative and conducive to economic growth with ample liquidity in the financial system. Overall government bond yields increased somewhat compared with the previous meeting, while real interest rates remained low. Such conditions allowed financing by the private sector to continue expanding with improvements seen in the amount of credit extended to SMEs and consumer loans. On exchange rates, the baht depreciated against the US dollar and experienced volatile movements due to the monetary policy outlook of advanced economies and increased concerns about trade protectionism measures as well as risks related to emerging market economies. Looking ahead, the baht would likely remain volatile. Thus, the Committee would closely monitor exchange rate developments as well as impacts on the economy going forward.
Financial stability remained sound but there continued to be a need to monitor pockets of risks that might pose vulnerabilities to financial stability in the future. These included, in particular, the search-for-yield behavior in the prolonged low interest rate environment that might lead to underpricing of risks, and the deterioration in debt serviceability of households and SMEs, especially those affected by changes in structural factors and business models.
Looking ahead, the Thai economy as a whole was projected to continue to gain further traction driven by both external and domestic factors. However, there remained the need to monitor the strength of the domestic demand and inflation developments in the period ahead, as well as impacts of trade protectionism measures which remained highly uncertain. Hence, the Committee viewed that monetary policy should remain accommodative.