Wednesday, May 11, 2016

Thailand holds rate but sees downside risks to growth

    Thailand's central bank left its policy rate steady at 1.50 percent, as expected, once again citing the need "to preserve policy space, while risks to financial stability from search-for-yield behavior continued to warrant close monitoring."
     The Bank of Thailand (BOT), which has maintained its rate since cutting it by 25 basis points in April 2015, added that it's policy stance "should remain sufficiently accommodative," and it was ready to use a mix of policy tools to ensure that monetary conditions held the economic recovery while at the same time ensuring financial stability.
    As in April, the BOT voiced its concern over the impact of a rise in the exchange rate of the baht since early January, saying this "might not be as conducive to the economic recovery," and that the divergence of monetary policy among advanced economies will continue to contribute to volatility in capital flows and exchange rates.
    The BOT appeared less optimistic about economic growth, saying "the balance of risks to economic growth was judged to be tilted more to the downside than previously assessed."
    In March the BOT lowered its 2016 growth forecast to 3.1 percent from December's forecast of 3.5 percent and said today that exports had contracted and private consumption had slowed due to the impact of drought on the income of farmers. An increased number of tourists and fiscal expansion were among the positive factors supporting economic activity.
    Thailand's economy expanded by 2.8 percent in 2015 and headline inflation rose to 0.07 percent in April, the first positive inflation rate since December 2014, mainly due to higher food prices.
    The BOT said it expects inflation to gradually rise but it remains well below its target of 2.5 percent, plus/minus 1.5 percentage points.
    The Thai baht was trading at 35.2 to the U.S. dollar today, up 2.2 percent since the start of this year.


    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.

The Thai economy continued to recover gradually on the back of public expenditure and the tourism sector which expanded with the broad-based increase in the number of inbound tourists. Nevertheless, merchandise export volume, excluding gold, contracted, while private investment remained low with expansion seen only in some business sectors. At the same time, private consumption slowed partly from the impact of the ongoing drought on income of agricultural households. As such, the balance of risks to economic growth was judged to be tilted more to the downside than previously assessed. Meanwhile, the global economic recovery remained fragile. In addition, the baht, which strengthened against some trading partner currencies in some recent periods, might not be as conducive to the economic recovery as it could be. Going forward, monetary policy divergence among advanced economies will continue to be a major contributing factor to capital flow and exchange rate volatility.

Headline inflation turned positive in April as the base effect of high oil prices dissipated, and fresh food prices accelerated from temporary factors. However, demand- side inflationary pressure remained subdued as reflected by stable core inflation. The Committee assessed that headline inflation would gradually rise as the aforementioned base effect continued to wane, although the inflation outlook could be affected by uncertainties pertaining to global oil price movements and softened domestic demand.

In deliberating monetary policy, the Committee judged that the Thai economy would continue to expand at a rate close to the previous assessment but face greater downside risks on the domestic front. Nonetheless, current monetary conditions eased further as bond yields remained low, and commercial bank lending rates declined. Therefore, the policy rate should be kept on hold to preserve policy space, while risks to financial stability from search-for-yield behavior continued to warrant close monitoring.

The Committee viewed that monetary policy should remain sufficiently 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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