Statement by the Bank of Thailand:
The Thai economy as a whole continued to gain traction, driven by merchandise exports and tourism which continued to improve in tandem with global economic growth, and by continued momentum from domestic demand. Growth in merchandise exports was expected to slow down somewhat due to trade protectionism measures between the US and China but would be partially offset by benefits from the relocation of production base to Thailand for some industries. Private consumption was expected to continue to achieve higher growth supported by improvements in income and employment, but overall purchasing power was recovering gradually due to elevated household debt. Public expenditure would grow at a lower rate than previously assessed due to constrained budget disbursement. Furthermore, the Thai economy would be subject to downside risks and uncertainties regarding US foreign trade policies that could be additionally announced, retaliatory measures from trading partners of the US, as well as geopolitical risks.
The annual average of headline inflation was expected to rise slowly in line with the previous assessment. However, downside risks remained as fresh food prices could fluctuate sharply depending on weather conditions and agricultural output. Core inflation was projected to edge up at a somewhat lower rate than previously assessed given the gradual build-up of demandpull inflationary pressures. The Committee viewed that, despite full potential economic growth, structural changes might contribute to more persistent inflation than in the past. Such changes included the expansion of e-commerce, rising price competition, and upgrades to production efficiency which reduced costs of production. 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 slightly, while real interest rates remained low. Such conditions allowed financing by the private sector to continue expanding as reflected in higher growth in both business and consumer loans. With regard to exchange rates, the baht appreciated against regional currencies since the last meeting due to concerns over external stability in emerging market economies. Looking ahead, the baht would likely remain volatile and thus the Committee would continue to closely monitor exchange rate developments as well as impacts on the economy.
Financial stability remained sound but there was still a need to monitor risks that might pose vulnerabilities to financial stability in the future, especially the search-for-yield behavior in the prolonged low interest rate environment that might lead to underpricing of risks. The Committee was concerned aboutcompetition in the housing loan market which led to loosercredit standards. In addition, the Committee deemed it necessary to monitor the oversupply of condominiums in certain areas, further accumulation of household debt given that deleveraging had yet to improve, and debt serviceability of 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 traction driven by both external and domestic factors. However, there remained the need to monitor inflation developments and financial stability risks in the period ahead, as well as risks arising from impacts of trade protectionism measures of the US and retaliatory measures by major advanced economies. Hence, the Committee viewed that monetary policy should remain accommodative, although the need for currently accommodative monetary policy would be gradually reduced.