It is Bank of Thailand's (BOT) first change in rate since a rate cut in April 2015 and the first rate hike since August 2011.
The rate hike was largely expected and comes after 3 of the monetary policy committee members in November voted to raise rates. Today, 5 of the 7 members voted for the hike while the other 2 members voted to maintain the rate, arguing external risks had risen and could threaten growth.
"Most members (of the MPC) viewed that the policy rate at 1.75 percent would remain conducive to economic growth," BOT said, adding the committee viewed that "accommodative monetary policy would remain appropriate in the period ahead."
The BOT said the Thai economy had continued to gain traction on the back of domestic demand while external demand was slowing but it was deemed necessary to monitor risks that might lead to the build-up of vulnerabilities in the financial system in the future.
Headline and core inflation was projected to be broadly in line with earlier assessments.
BOT has forecast economic growth this year of 4.4 percent and 4.2 percent in 2019 and headline inflation of 1.1 percent this year and 2019.
Thailand's gross domestic product grew by lower-than-expected 3.3 percent year-on-year in the third quarter, down from 4.6 percent in the second quarter while headline inflation eased to 0.94 percent in November from 1.23 percent, just below its target range of 1.0 - 4.0 percent.
After depreciating from April to August, the Thai baht has risen slightly since November and was trading at 32.7 to the U.S. dollar today, largely unchanged since the start of the year.
The Bank of Thailand issued the following statement:
"The Committee voted 5 to 2 to raise the policy rate by 0.25 percentage point from 1.50 to 1.75 percent, effective immediately. Two members voted to maintain the policy rate at 1.50 percent.
In deliberating their policy decision, the Committee assessed that the Thai economy continued to gain traction on the back of domestic demand while external demand slowed down. Headline and core inflation were projected to be broadly in line with the previous assessment. Overall financial conditions remained accommodative and conducive to economic growth. Financial stability remained sound overall, but it was deemed necessary to monitor risks that might lead to the build-up of vulnerabilities in the financial system in the future. The Committee viewed that the prolonged low policy rate had contributed to the economy expanding at the level consistent with its potential and the inflation target. Thus, most members viewed that the need for accommodative monetary policy as in the previous period had reduced, and voted to raise the policy rate at this meeting in order to curb financial stability risks and to start building policy space. Most members viewed that the policy rate at 1.75 percent would remain conducive to economic growth. Two members viewed that risks and uncertainties on the external front heightened andcould affect Thailand’s economic growth in the period ahead, and thus saw the need to assess the clarity of impacts of external factors as well as sustainability of domestic growth momentum for some time. In addition, the implemented macroprudential measures had addressed certain risks in the financial stability to some extent.
The Thai economy as a whole continued to gain traction, consistent with its potential, although merchandise exports were affected by the projected slowdown in the global economy as well as trade protectionism measures between the US and China. Meanwhile, tourism exhibited slower growth especially due to the decline in the number of Chinese tourists but started to show signs of improvement. Domestic demand momentum continued to expand. Private consumption was expected to expand on the back of increasingly broad-based improvements in non-farm income as well as additional supports from government measures, while household income in the agricultural sector slightly declined. Nevertheless, private consumption was restrained by elevated household debt. Private investment was projected to expand thanks to the relocation of production base to Thailand and public-private partnership projects for infrastructure investment. Public expenditure would grow at a slower pace than previously assessed due to delayed investment by some state-owned enterprises. The Committee would monitor risks associated with trade protectionism measures between the US and China that could affect momentum of economic growth in the period ahead.
In deliberating their policy decision, the Committee assessed that the Thai economy continued to gain traction on the back of domestic demand while external demand slowed down. Headline and core inflation were projected to be broadly in line with the previous assessment. Overall financial conditions remained accommodative and conducive to economic growth. Financial stability remained sound overall, but it was deemed necessary to monitor risks that might lead to the build-up of vulnerabilities in the financial system in the future. The Committee viewed that the prolonged low policy rate had contributed to the economy expanding at the level consistent with its potential and the inflation target. Thus, most members viewed that the need for accommodative monetary policy as in the previous period had reduced, and voted to raise the policy rate at this meeting in order to curb financial stability risks and to start building policy space. Most members viewed that the policy rate at 1.75 percent would remain conducive to economic growth. Two members viewed that risks and uncertainties on the external front heightened andcould affect Thailand’s economic growth in the period ahead, and thus saw the need to assess the clarity of impacts of external factors as well as sustainability of domestic growth momentum for some time. In addition, the implemented macroprudential measures had addressed certain risks in the financial stability to some extent.
The Thai economy as a whole continued to gain traction, consistent with its potential, although merchandise exports were affected by the projected slowdown in the global economy as well as trade protectionism measures between the US and China. Meanwhile, tourism exhibited slower growth especially due to the decline in the number of Chinese tourists but started to show signs of improvement. Domestic demand momentum continued to expand. Private consumption was expected to expand on the back of increasingly broad-based improvements in non-farm income as well as additional supports from government measures, while household income in the agricultural sector slightly declined. Nevertheless, private consumption was restrained by elevated household debt. Private investment was projected to expand thanks to the relocation of production base to Thailand and public-private partnership projects for infrastructure investment. Public expenditure would grow at a slower pace than previously assessed due to delayed investment by some state-owned enterprises. The Committee would monitor risks associated with trade protectionism measures between the US and China that could affect momentum of economic growth in the period ahead.
The annual average of headline inflation projection was expected to be broadly unchanged. However, downside risks remained due to fluctuations in energy and fresh food prices. Core inflation was projected to rise given the gradually rising demand-pull inflationary pressures. The Committee viewed that structural changes contributed to more persistent inflation than in the past. Such changes included the expansion of e-commerce, rising price competition, and technological development which reduced costs of production.
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 low, allowing financing by the private sector to continue expanding. Loans extended to large businesses and consumer continued to grow. The Committee assessed that, although the policy rate increased by 0.25 percent, overall financial conditions would remain accommodative and conducive to economic growth. With regard to exchange rates, movements of the baht against the US dollar were broadly stabilized compared with those of regional currencies. 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 overall but there remained a need to monitor risks arising from the prolonged low interest rate environment that might pose vulnerabilities to financial stability in the future, especially the search-for-yield behavior that might lead to underpricing of risks. The Committee viewed that the policy rate increase at this meeting would help curb accumulation of vulnerabilities in the financial system in conjunction with the macroprudential measures already implemented.
Looking ahead, the Thai economy was projected to continue to gain traction despite the slowdown in external demand. The Committee viewed that accommodative monetary policy would remain appropriate in the period ahead, and thus would continue to closely monitor developments of economic growth, inflation, and financial stability, together with associated risks, in deliberating appropriate monetary policy in the period ahead."
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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 low, allowing financing by the private sector to continue expanding. Loans extended to large businesses and consumer continued to grow. The Committee assessed that, although the policy rate increased by 0.25 percent, overall financial conditions would remain accommodative and conducive to economic growth. With regard to exchange rates, movements of the baht against the US dollar were broadly stabilized compared with those of regional currencies. 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 overall but there remained a need to monitor risks arising from the prolonged low interest rate environment that might pose vulnerabilities to financial stability in the future, especially the search-for-yield behavior that might lead to underpricing of risks. The Committee viewed that the policy rate increase at this meeting would help curb accumulation of vulnerabilities in the financial system in conjunction with the macroprudential measures already implemented.
Looking ahead, the Thai economy was projected to continue to gain traction despite the slowdown in external demand. The Committee viewed that accommodative monetary policy would remain appropriate in the period ahead, and thus would continue to closely monitor developments of economic growth, inflation, and financial stability, together with associated risks, in deliberating appropriate monetary policy in the period ahead."
www.CentralBankNews.info
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