Wednesday, February 3, 2016

Thailand maintains rate, still sees inflation rising

    Thailand's central bank left its key policy rate steady at 1.50 percent, as expected, saying it still expects inflation to rise gradually and turn positive in the first half of this year despite the downside risks to inflation from the fall in global oil prices.
    The Bank of Thailand (BOT), which cut its rate by 50 basis points in 2015, also said that it expects the country's economy to expand at a rate that is similar to its forecast from December, supported by domestic demand.
   However, it added that external risks had risen from the economies of its major trading partners, shifting global trade structure, low commodity prices, and the divergence of monetary policy among advanced economies continues to affect capital flows and exchange rate movements.
    In December the BOT lowered its forecast for 2016 headline inflation to 0.8 percent from a previous 1.2 percent due to the fall in global oil prices, but it considers deflationary risks to be contained as domestic demand continues to recover, core inflation is positive and inflation expectations remains close to the bank's target of 2.5 percent, plus/minus 1.5 percentage point.
    Thai consumer prices fell by 0.53 percent in January, down from a 0.85 percent fall in December for the 13th month in a row of deflation. The BOT estimated annual deflation of 0.9 percent in 2015.
    Thailand's Gross Domestic Product expanded by 1.0 percent in the third quarter of 2015 from the second quarter for annual growth of 2.9 percent, marginally up from 2.8 percent in the second quarter but down from 3.0 percent in the first quarter.
    Thailand's economy is being supported by high public spending, an improving number of tourists, especially from China, and a continued rise in private consumption on the back of the government's tax rebate and accelerated car purchases ahead of an increase in vehicle taxes at the start of 2016.
    In contrast, the BOT said merchandise exports had contracted "markedly."
    In December the BOT slashed its forecast for exports to stagnate in 2015 after previously expecting they would expand by 0.6 percent following zero percent growth in 2014.
    For 2016 the BOT lowered its forecast for exports to grow by 2.1 percent from September's forecast of 3.3 percent growth.
    For 2016 economic growth, the BOT lowered its forecast to 3.5 percent from a previous 3.7 percent due to lower-than-expected foreign demand, particularly from China and other Asian economies.
    But for 2015 the BOT raised its forecast to 2.8 percent from 2.7 percent due to higher-than-expected private consumption and public investment.
    The BOT still considers its monetary policy stance to be accommodative and that this should remain the case while still keeping in mind the risks to financial stability.

   The Bank of Thailand issued the following statement:

"The Committee voted unanimously to maintain the policy rate at 1.50 percent.

Key considerations for policy deliberation are as follows.
In the fourth quarter of 2015, the Thai economy gradually recovered at a pace close to the assessment at the previous meeting, supported by high disbursement of public expenditure, an improving number of tourist arrivals, especially Chinese tourists, and continued expansion in private consumption. The improvement in private consumption expenditure was due partly to a temporary effect of the government’s tax rebate measure around the end of last year, as well as accelerated car purchases prior to the increase in vehicle excise tax. Meanwhile, merchandise export value contracted markedly.

Inflationary pressure declined further from the previous meeting due mainly to a sharp and larger-than-expected fall in global oil prices, causing inflationary risks to skew more towards the downside. Nevertheless, headline inflation is projected to rise gradually and likely turn positive during the first half of 2016. Meanwhile, deflationary risks remain contained as demand continues to expand and core inflation is still positive, consistent with medium-term inflation expectations of the public.

Under the Committee’s assessment, the Thai economy is projected to expand in 2016 at a rate close to the assessment at the previous meeting, supported mainly by domestic demand. Meanwhile, external risks increased from major trading partners’ economies, shifting global trade structure, and low commodity prices. In addition, monetary policy divergence among advanced economies continues to influence capital flows and exchange rate movements.

In deliberating monetary policy, the Committee judged that monetary policy remained accommodative, and the policy space should be preserved, while being mindful of risks to financial stability. Therefore, the policy rate should be kept on hold at this meeting. Nevertheless, the Committee will continue to monitor economic and financial developments closely, and stand ready to utilize an appropriate mix of available policy tools in order to support the economic recovery, while ensuring financial stability."


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