Bank of Thailand Rebuffs Government by Keeping Rate on Hold
Thailand Holds Key Rate in Rebuff to Government Call for Easing
(Bloomberg) -- Thailand’s central bank held its benchmark interest rate near a record low, spurning the government’s call for policy easing as it painted a brighter outlook for the economy.
Key Points |
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The Backdrop
Thailand’s Finance Ministry has been stepping up pressure on the central bank to cut interest rates as the currency surges and as inflation remains subdued. The International Monetary Fund supports the argument for easing, saying it will help steer low inflation back to the target range.
Economic growth is lagging peers in Southeast Asia and the export-reliant nation is at risk from the baht which has gained more than 7 percent against the dollar this year -- the strongest performance in Asia.
The Bank of Thailand is holding its ground and has argued that a rate cut may increase financial stability risks. The central bank has instead intervened in the currency market and curbed the supply of short-term bonds to restrain the baht.
Inflation was 0.3 percent in August, below the central bank’s target band of 1 percent to 4 percent. While household debt has fallen this year, it is still close to 80 percent of gross domestic product.
New Forecasts
| GDP growth | 2017 | 2018 |
|---|---|---|
| New forecast | 3.8% | 3.8% |
| July forecast | 3.5% | 3.7% |
| Inflation | 2017 | 2018 |
|---|---|---|
| New forecast | 0.6% | 1.2% |
| July forecast | 0.8% | 1.6% |
Economist Takeaway
“The Bank of Thailand today resisted pressure from the government to loosen monetary policy,” said Gareth Leather, senior Asia economist at Capital Economics Ltd. in London. He predicted that rates may remain on hold until 2018, citing risks to the economy.
“High levels of household debt are likely to drag on consumer spending, while investment will be held back by the worsening business environment and continued political uncertainty,” he said.
Markets
- The baht dropped 0.3 percent to 33.280 per dollar as of 2:45 p.m. in Bangkok
- The benchmark stock index was little changed, paring earlier gains of as much as 0.3 percent.
--With assistance from Anuchit Nguyen and Margo Towie
To contact the reporters on this story: Natnicha Chuwiruch in Bangkok at nchuwiruch@bloomberg.net, Suttinee Yuvejwattana in Bangkok at suttinee1@bloomberg.net.
To contact the editors responsible for this story: Nasreen Seria at nseria@bloomberg.net, Karl Lester M. Yap, Sunil Jagtiani