Posted on 04 Apr 2013
Thailand's central bank has left its benchmark interest rate unchanged at 2.75%, again ignoring government calls for a cut and reiterating it was concerned about credit growth and potential asset bubbles.
The Bank of Thailand (BoT) said the current one-day repurchase rate rate was still appropriate. It last changed the rate in October, with a surprise 25-basis point cut.
The BOT said its sevenmember monetary policy committee (MPC) on which central bank officials only have three seats voted 51 in favour of keeping the rate unchanged.
The dissenter voted for a quarterpoint rate cut. One member was overseas.
The central bank, in a statement, said the MPC judged that “given the fragile state of the global economy, a continuation of the accommodative monetary policy stance remains appropriate. However, risks to financial stability, including volatile exchange rate and capital flows, are a concern.”
It said that the global economy continued to gradually recover “however tail risks have edged up somewhat since the last meeting, as financial crisis in the euro zone could exacerbate the economic contraction.”
Prior to the last MPC meeting on Feb 20 and again afterwards Thai Finance Minister Kittirat Na Ranong urged a rate cut to discourage capital inflows and help exporters complaining about a strengthening baht.
On Feb 20, the MPC voted 61 to hold the rate.
All but one of 16 economists polled by Reuters expected the policy rate to be left at 2.75 % on Wednesday, and the other predicted a 25-basis point cut.
Most economists think the policy rate will remain on hold for the rest of 2013, although a few predict a rate cut and some others see an increase due to inflation risks later in the year.
Annual headline inflation fell to 2.69% in March from 3.23% in February, and the core rate, which guides monetary policy, slid to 1.23%, the lowest since November 2010, inside the central bank's forecast range of 0.5%-3.%.
But the central bank is concerned that inflationary pressures could rise, and has said it doesn't think interest rates should stay low for too long.
BOT Assistant Governor Paiboon Kittisrikangwan told a briefing that growth in household credits and consumer loans remained high and property prices in some areas rose rapidly. He added the credit growth was due to the current accommodative monetary policy. - Reuters
that continued to support the economy and liquidity in the system.
FACING A DISCONNECT
”The disconnect between asset prices and consumer prices is the main reason why the BOT is constrained from cutting rates,” said Eugene Leow, economist at DBS Bank in Singapore. “While headline inflation has been below expectations, stock prices and condominium prices have risen very sharply over the past year.”
Leow said inflation is “likely to trend up in the coming quarters amid robust economic growth. Inflation risks will outweigh growth risks as the year progresses. Some monetary tightening may be needed by end2013.”
As inflation has been benign, Kittirat has called for policy easing, saying the benchmark interest rate is too high and should be cut to deter “hot money” inflows that pushed the baht to a 16year high against the dollar in March, to the concern of exporters.
The baht was 29.32 per dollar after the rate decision. It has risen about 4.4 % against the dollar this year, making it Asia's strongest currency.
BOT Governor Prasarn Trairatvorakul has reiterated that interest rates were not the only factor, or even the main factor, attracting inflows and that the central bank's main duty is to ensure economic stability.
ECONOMY ON NORMAL TREND
The central bank repeated that it is likely to raise its 2013 economic growth forecast from 4.9 %, but it indicated the revision would be a small one.
The Thai economy “is projected to moderate toward a normal trend in the first quarter” after accelerating in the last quarter of 2012, when the growth looked very fast on an annual basis because of severe floods in the final months of 2011.
For 2012, Thailand grew a fasterthanexpected 6.4 %, compared with 0.1 % the previous year. Some economists think growth could be as high as 5.7 % this year.
The pace of annual loan growth in Thailand has been rising. It rose 15.3 % in 2012, after 11.4 % in 2011 and 12 % in 2010.
Given continued economic growth and higher wages, economists are worried about price pressure, which could require higher interest rates to curb inflation later in the year.
A daily minimum wage rose to 300 baht ($10) across the country in January, a 26 % increase on average, as the government delivered its promised stimulus policies.
As global uncertainty remains and inflation is largely contained, central banks across Asia have been keeping monetary policy easy to help their economies.
