Thailand Holds Key Rate With Prospect for Future Hike Rising

(Bloomberg) -- Thailand’s central bank left its benchmark interest rate unchanged near a record low as expected, with the prospect of a future tightening increasing as more monetary policy committee members dissented.

Five of the seven committee members at the meeting voted to hold the one-day bond repurchase rate at 1.5 percent, where it’s been since 2015, according to the Bank of Thailand’s statement on Wednesday. Two voted for an increase to 1.75 percent, compared to just one in the June and August meetings.

“The committee viewed that the monetary policy should remain accommodative although the need for currently accommodative monetary policy would be gradually reduced,” the central bank said in the statement.

Thailand Holds Key Rate With Prospect for Future Hike Rising

Most central banks in Southeast Asia have raised rates this year to help support currencies caught in the contagion sweeping across emerging markets. While Thailand’s hefty foreign reserves and a current-account surplus have helped to shield the nation against the worst of the volatility, policy makers are laying the groundwork for rate hikes as inflation picks up.

What Our Economists Say...

The Bank of Thailand is moving in the direction of rate hikes. While the direction is clear, the timing is less certain. While a hike at the next meeting cannot be ruled out, we think a move later in the year is more likely.

-- Tamara Henderson, Bloomberg Economics

Twenty one of 24 economists surveyed by Bloomberg predicted the decision, with three forecasting a quarter-point hike.

Inflation accelerated to 1.62 percent last month, the fastest pace since 2014. The central bank’s target is an annual average inflation rate of 1 percent to 4 percent for this year. The currency is the only gainer against the dollar in Asia this quarter.

The central bank retained its economic growth forecast for this year at 4.4 percent, and at 4.2 percent for 2019. The inflation estimate was kept at 1.1 percent for 2018, while the forecast for next year was cut to 1.1 percent.

Click to read the updated forecasts

Economic expansion slowed to 4.6 percent in the second quarter from a five-year high of 4.9 percent in the previous three months. The trade outlook is key as exports of goods and services are equivalent to about two-thirds of gross domestic product.

©2018 Bloomberg L.P.