Wednesday, December 21, 2016

Thailand maintains rate though downside risks rise

    Thailand's central bank maintained its policy rate at 1.50 percent, as expected, and while it expects the economy to continue to expand at the forecast pace it said downside risks had risen from weaker-than-expected growth among its trading partners, uncertainty over the direction of U.S. trade policy and the number of Chinese tourists that could be lower than expected.
    The Bank of Thailand (BOT), which has maintained its rate this year after cutting it by 50 basis points in 2015, added that it was also closely monitoring uncertainties linked to political developments in Europe and concern over the European and Chinese financial sectors.
    In comparison, in its November statement the BOT did not mention any risk from growth among its trading partners though it pointed to the risk of fewer-than-expected Chinese tourists, and uncertainties from U.S. and European political developments.
    As in previous months, the BOT said it's monetary policy should remain accommodative and it's ready to use a mix of policies to ensure monetary conditions are conducive to economic recovery.
    "The Thai economy was projected to expand at a pace close to the previous assessment," the BOT said, adding that tourism has been affected by measures to curb illegitimate tour operators and private investment remains low.
    But these factors are being offset by improvements in exports, stronger private consumption and increase public spending.
     Thailand's economy grew by an annual rate of 3.2 percent in the third quarter, down from 3.5 percent in the second quarter and in its statement on October economic conditions, the central bank said the economy expanded at a slower pace than in September, with public spending was still an important driver of growth while exports contracted and the tourism sector decelerated.
    Thailand's inflation rate rose to 0.6 percent in November from 0.34 percent in October and the BOT expects inflation to gradually rise and return to within its target band in the first half of next year though the exact timing would depend on oil and food prices.
    The BOT targets inflation of 2.5 percent, plus/minus 1.5 percentage points.
     Thailand's baht was among the currencies that were heavily affected by the "taper tantrum" of May 2013, with the currency quickly falling that year until early 2014 when it stabilized and traded sideways until April 2015. It then fell again sharply and hit record lows around 36.4 to the U.S. dollar  in October 2015.
    After rebounding over the next 12 months, it lost steam in the last two months until it rose slightly in the last week and was trading at 35.99 to the dollar today, unchanged since the start of the year.


    The Bank of Thailand issued the following statement:



"The Committee voted unanimously to maintain the policy rate at 1.50 percent.
In deliberating their policy decision, the Committee assessed that the Thai economy would continue to expand at a pace close to the previous assessment, but downside risks increased. Inflation was still expected to slowly rise. Meanwhile, monetary conditions remained accommodative and conducive to the economic recovery. Hence, the Committee decided to keep the policy rate on hold at this meeting.

The Thai economy was projected to expand at a pace close to the previous assessment. Tourism was affected more than expected by recent measures to curb illegitimate tour operators, and private investment remained low. 
Nevertheless, such negative impact on growth was offset by improvements seen in exports of goods due to recent consolidation of production location of certain products to Thailand. Moreover, private consumption improved on the back of farm income and the government’s short-term stimulus measures. Meanwhile, public expenditure remained an important growth driver for the economy.
Looking ahead, the Committee viewed that the Thai economy remained on a recovery path with the overall growth momentum largely unchanged from the previous meeting.
 However, risks to growth tilted further to the downside due to Thailand’s trading partners which might record weaker-than-expected growth, uncertainties in the direction of the US trade policies that would have significant implications for confidence and international trade, and the number of Chinese tourists that could turn out lower than projected. Meanwhile, uncertainties pertaining to political developments in Europe as well as concerns over the European and Chinese financial sectors continued to warrant close monitoring.

Headline inflation was projected to gradually rise and return to the target band within the first quarter of 2017, although the timing would depend largely on future development in oil and fresh food prices. Core inflation remained stable at low levels around the previous assessment. Meanwhile, the public’s medium-term inflation expectations remained close to the target.

Overall monetary conditions remained accommodative and conducive to the economic recovery with ample liquidity in the financial system and low real interest rates. Long-term bond yields increased but remained close to last year’s averages. Over the recent period, the baht depreciated against the US dollar, though to a lesser extent compared with overall trading partner currencies which might not be as beneficial to the ongoing economic recovery as it could. In addition, financial stability remained sound and able to provide 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.

The Committee assessed that the Thai economy would still be facing greater uncertainties going forward, particularly the fragile global economic recovery and uncertainties in the economic and monetary policy directions of major advanced economies that might induce greater capital flow and exchange rate volatility. 
The Committee viewed that monetary policy should remain accommodative, and stands ready to utilize an appropriate mix of available policy tools in order to ensure that monetary conditions are conducive to the economic recovery, while ensuring financial stability."

NOV Going forward, the Committee viewed that monetary policy should remain accommodative, and stands ready to utilize an appropriate mix of available policy tools in order to ensure that monetary conditions are conducive to the economic recovery, while ensuring financial stability. 

    www.CentralBankNews.info


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