Wednesday, May 24, 2017

Thailand holds rate as outlook for growth improves

    Thailand's central bank left its policy rate at 1.50 percent, as widely expected, but was slightly more optimistic about the outlook for economic growth as exports continue to recover and improved farm income and consumer confidence bolsters private consumption.
     The Bank of Thailand (BOT), which has maintained its rate since April 2015, added that inflation has been softer than expected but is still expected to rise in the second half of the year.
     "The Committee assessed that the Thai economy's growth outlook improved further despite facing risks especially on the external front," the BOT said, a more optimistic tone than in its previous policy statement from March when it said the economy "continued to gain traction," but there were considerable uncertainties related to the global economy.
      But unlike its March statement, when the BOT said the a recent appreciation of the Thai baht "might not be as beneficial to the economy as it could," today it merely observed that the exchange rate in the recent period was in line with regional currencies.
     The baht fell sharply from the "taper tantrum" of April 2013 to September 2015 but since then it has been slowly appreciating, especially this year.
    The bath was trading at 34.36 to the U.S. dollar today, up 4.2 percent this year. 
     Thailand's economy expanded by 1.3 percent in the first quarter of this year from the previous quarter for the fastest pace since the fourth quarter of 2012, boosted by consumption and exports.
     On an annual basis, Gross Domestic Product was up 3.3 percent, up from 3.0 percent in the fourth quarter of last year, as tourism also continued to recover, as expected. Public spending continues to remain an important driver of economic activity.
     The government's planning agency has raised its outlook for export growth this year to 3.6 percent from a previous 2.9 percent and narrowed its overall 2017 growth forecast to 3.3 - 3.8 percent from 3.0 - 4.0 percent. Thailand grew 3.2 percent in 2016.
     Inflation, however, remains far below the BOT's target range of 1- 4 percent, around a midpoint target of 2.5 percent, with little sign of demand-pull pressure.
     Thailand's headline inflation rate eased to 0.38 percent in April from 0.76 percent in March due to lower fresh food prices as agricultural output has risen compared with last year's drought.
      In March the BOT lowered its forecast for 2017 inflation to 1.2 percent from 1.5 percent.

     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’s growth outlook improved further despite facing risks especially on the external front. Headline inflation softened and might fall below the target in some periods mainly due to supply side factors. Nevertheless, it was projected to rise during the latter half of the year. Meanwhile, overall financing conditions remained accommodative and conducive to economic growth. Hence, the Committee decided to keep the policy rate unchanged at this meeting.

Further improvement in the growth outlook was attributed to the continued recovery in merchandise exports as Thailand’s trading partner economies gained momentum. In addition, private consumption picked up somewhat supported by improved farm income and consumer confidence. Tourism continued to recover as expected, and public expenditure remained an important growth driver. Meanwhile, private investment was projected to slowly recover. However, the improved growth outlook was still subjected to risks that warranted close monitoring. These included US economic and foreign trade policies, China’s economic structural reforms, and geopolitical risks.

Headline inflation turned out softer than expected on account of lower fresh food prices due to this year’s higher agricultural output and last year’s base effects following the drought. Meanwhile, demand-pull inflationary pressure remained low. Nevertheless, headline inflation was expected to gradually rise in the latter half of the year, and the public’s medium-term inflation remained close to the midpoint of the target.

Overall financial conditions remained accommodative and conducive to economic growth with ample liquidity in the financial system and low real interest rates. Meanwhile, business financing through both credit and capital markets continued to expand. With regard to exchange rates, movements in the baht over the recent period were in line with regional currencies.

The Committee viewed that financial stability remained sound with sufficient 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 debt serviceability of small-and-medium sized enterprises (SMEs) which in part reflected competitiveness issues. Moreover, the search-for-yield behavior in the prolonged low interest rate environment continued to warrant monitoring as it could lead to underpricing of risks.

Looking ahead, the Thai economy’s growth outlook improved further despite uncertainties on the external front. Meanwhile, demand-pull inflationary pressures remained low. Thus, the Committee viewed that monetary policy should remain accommodative, and would stand ready to utilize available policy tools to sustain economic growth while also ensuring financial stability."


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