The portrait of Thai King Maha Vajiralongkorn is displayed on a 100 baht banknote in an arranged photograph in Bangkok, Thailand. (Photographer: Brent Lewin/Bloomberg)

Bank of Thailand Keeps Key Rate on Hold as Inflation Dives

(Bloomberg) -- Thailand’s central bank left its benchmark interest rate unchanged, as expected, as slower inflation and a soaring currency give policy makers room to pause after December’s hike.

Four of the six members of the Monetary Policy Committee present at the meeting voted to hold the one-day bond repurchase rate at 1.75 percent, the Bank of Thailand said in a statement on Wednesday. Two called for a 25 basis point hike, while one member was absent. All 21 economists surveyed by Bloomberg predicted the decision.

“The committee viewed that accommodative monetary policy would remain appropriate in the period ahead,” the central bank said, as it continues to monitor economic growth, inflation and financial stability.

Bank of Thailand Keeps Key Rate on Hold as Inflation Dives

Key Insights

  • After the first rate hike in seven years in December, economists see the Bank of Thailand on hold this year, given subdued inflation and the U.S. Federal Reserve’s shift to a prolonged pause in its tightening cycle
  • Policy makers cited financial stability risks as a reason to remain cautious. While recent credit restrictions would help curb “vulnerabilities” in the financial system, developments in the mortgage loan market, real estate sector, and rising debt in the economy “still warranted monitoring,” the bank said
  • Consumer prices rose at the slowest pace in 18 months in January, gaining just 0.3 percent from a year ago, on the back of low oil prices and a strong baht. Inflation has undershot the central bank’s 1 percent to 4 percent target range in the past three months
  • The baht has surged more than 4 percent against the dollar this year, the best performer in a basket of major Asian currencies tracked by Bloomberg. The central bank said the currency will remain “volatile” due to external risks
  • Finance Minister Apisak Tantivorawong said last week an overshooting currency will put export-reliant Thailand at a disadvantage and it is the central bank’s job to curb swings in the baht

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  • Exports dropped in the last two months of 2018 as U.S.-China trade tensions and weaker global growth weighed on demand. Shipments of goods and services are equivalent to about two-thirds of GDP in Southeast Asia’s second-largest economy
  • The Finance Ministry last week cut its economic growth estimate for 2018 to 4.1 percent from 4.5 percent and predicted expansion of 4 percent this year
  • The baht was little changed, gaining less than 0.1 percent to 31.279 against the dollar as of 2:25 p.m. in Bangkok

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