Wednesday, June 18, 2014

Thailand maintains rate, economy should pick up pace

    Thailand's central bank maintained its policy rate at 2.0 percent, saying "the economic recovery should pick up pace given reduced political uncertainties and a resumption of functioning public policy management."
    The Bank of Thailand (BOT), which cut its rate by 25 basis points in March and by 50 points in 2013, added that "more activate fiscal policy and prevailing monetary policy accommodation should lend support to a sustained economic recovery."
    It was the BOT's first monetary policy decision since the coup by the Thai army on May 22 and most economists had expected the central bank to keep rates steady in light of the improving economic prospects after the coup ended months of political and social unrest that weighed on domestic demand and hurt the important tourism industry.
    The decision to maintain the policy rate was unanimous by the Monetary Policy Committee.
    In March the central bank said it still had scope to ease policy further but in April it omitted that statement. But the central bank also said in April that it was likely to lower its 2014 growth forecast this month from its March forecast of 2.7 percent.
     The Thai economy contracted by 2.1 percent in the first quarter of this year from the previous quarter for an annual decline in Gross Domestic Product of 0.6 percent, down from annual growth of 0.6 percent in the previous quarter, as a moderate recovery of exports could not compensate for a decline in domestic demand.

    "Following a significant reduction of political uncertainties, the economy should benefit from improving public and private spending," the BOT said, adding that a slow recovery in exports and tourism remain downside risks to growth and inflationary pressures have edged higher.  
    Thailand's headline inflation rate rose to 2.62 percent in May from 2.45 percent in April while the core inflation rate rose to 1.75 percent from 1.66 percent.
    The BOT, which targets core inflation of 0.5 to 3.0 percent, in March forecast core inflation of 2.5 percent this year and headline inflation of 1.5 percent.
    "The global economic recovery, led by major economies, retained its momentum," the BOT said, adding that the U.S. economy continued to growth on the back of stronger labour and housing markets, the recovery in the euro area and Japan continued at a moderate pace, while financial risks in China had subsided and the downside risks to growth had diminished.
   Asian economies remained stable, the bank said, with exports partially offsetting slowing domestic demand, the BOT said.


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