The Bank of Thailand kept the policy rate at 1.75 percent on March 2019 meeting, as widely expected. The Committee said that the current accommodating monetary policy stance would remain appropriate in the period ahead and would continue to support economic growth, financial stability and inflation. For 2019, the Bank revised its economic growth forecast to 3.8 percent from 4.0 percent while inflation was 1 percent, unchanged from seen three months ago.
Statement by the Bank of Thailand:
Despite a slight downward revision to economic projection, the Thai economy as a whole was expected to continue expanding around its potential on the back of domestic demand. Private consumption was expected to continue expanding on the back of increasingly broad-based improvements in both farm and non-farm income with additional supports from government measures. Nevertheless, private consumption was restrained by elevated household debt. Private investment was projected to continue expanding thanks to the relocation of production base to Thailand, public-private partnership projects for infrastructure investment, and favourable business sentiment. Meanwhile, merchandise exports grew at a slower pace than previously assessed due to the global economic slowdown, a down cycle of electronic products as well as impacts from trade protectionism measures between the US and China. Tourism continued to gain traction. Public expenditure, both consumption and investment, would grow at a slower pace than previously assessed, which was partly due to delay in some state-owned enterprise investment projects.
The annual average of headline inflation would be largely unchanged from the previous projection. This was attributable to higher energy prices relative to the assessment in the previous meeting. In addition, fresh food prices increased as excess supply alleviated and the drought condition intensified, which offset effects of lower core inflation compared to the previous assessment.
Financial conditions over the previous period had been accommodative and conducive to economic growth, with ample liquidity in the financial system. Real interest rates remained at a low level, allowing financing by the private sector to continue expanding. Loans extended to businesses and consumers continued to grow. With regard to exchange rates, the Thai baht depreciated against the US dollar in the intermeeting period in line with regional currencies. Looking ahead, the baht would likely remain volatile due to both domestic and external uncertainties, and thus the Committee would continue to closely monitor exchange rate developments as well as their impacts on the economy.
Financial stability remained sound overall but there remained a need to monitor risks that might pose vulnerabilities to financial stability in the future. The Committee viewed that the implemented macroprudential measures and the increased policy rate would to some extent help curb accumulation of vulnerabilities in the financial system from the search-for-yield behavior in the low interest rate environment that might lead to underpricing of risks.
Looking ahead, the Thai economy was projected to continue to gain traction although the external demand momentum might slow down. The Committee viewed that current accommodative monetary policy stance would remain appropriate and would continue to monitor developments of economic growth, inflation, and financial stability, together with associated risks, in deliberating appropriate monetary policy in the period ahead.
Bank of Thailand l Chusnul Ch Manan | chusnul@tradingeconomics.com
3/20/2019 12:00:08 PM