Thai Central Bank Governor Says Accommodative Policy Needed

(Bloomberg) -- Thailand’s monetary policy should remain accommodative to nurture the economic recovery and as inflationary pressure remains weak, central bank Governor Veerathai Santiprabhob said.

Thailand is still in the “early stage of a recovery of domestic demand,” Veerathai said in an interview with Bloomberg TV in Singapore on Thursday. The most important factor in deciding policy is inflation pressure, followed by the strength of the economic recovery and financial stability, he said.

The Bank of Thailand’s first dissenting vote on an interest-rate decision in almost three years last week sparked speculation over whether it’s edging closer to boosting near record-low borrowing costs. Obstacles to an increase in the policy rate, which has been at 1.5 percent since 2015, include below-target inflation and the export-reliant economy’s surging currency.

Click to read: Thailand Holds Interest Rate With One MPC Member Dissenting

One of seven monetary policy committee members on March 28 voted for a 25 basis-point hike, while the rest called for no change. The split followed comments by Deputy Governor Paiboon Kittisrikangwan at the start of March suggesting that the central bank should start thinking about policy normalization.

Thai Central Bank Governor Says Accommodative Policy Needed

Inflation has missed the central bank’s target range of 1 percent to 4 percent for the last three years. The monetary authority expects to achieve the goal in the second quarter.

Trade Spat

Veerathai also weighed in on the ongoing U.S.-China trade skirmishes, noting that while the direct impact on the Thai economy “so far has been quite small,” further retaliation could cause a “quite large” disruption on the regional supply chain.

China’s proposal Wednesday for an additional 25 percent tariff on about $50 billion of U.S. imports was the latest in a series of barbs and penalties traded by the world’s two largest economies, rocking global markets and putting nations on guard for ripple effects.

Several governments in Asia including Thailand are watching for an impending report from the U.S. Treasury Department that could target alleged currency manipulators.

“Thailand is definitely not a currency manipulator,” with the baht appreciating about 15 percent since the end of 2016, Veerathai said in the interview. The currency gained 0.1 percent to 31.22 per dollar as of noon in Bangkok on Thursday.

“We have allowed our currency to move in line of the market’s demand and supply,” he said. “But obviously, we have been at the receiving end of global excess liquidity that at that time flushed the market in this part of the world.”

The central bank needs to ensure the pace of appreciation isn’t damaging to the economy as a whole, and is particularly focused on the impact of the baht’s volatility on the private sector, Veerathai said.

©2018 Bloomberg L.P.