Thai central bank holds rates, says it is hiking 2015 growth forecast

DEC 16, 20155:02 PM

[BANGKOK] Thailand's central bank kept its key interest rate unchanged on Wednesday, as expected, leaving fiscal stimulus and government spending to support the weak domestic economy, which it now expects to perform slightly better than forecast.

The Bank of Thailand (BOT) said the current rate still supported economic recovery and that monetary policy would stay"accommodative".

The BOT said higher public expenditure and strong tourism has led it revise up slightly its 2015 growth forecast from 2.7 per cent, but it won't release the new number until Dec 25. It said its 2016 projection will stay close to 3.7 per cent.

At its meeting just hours before a pivotal Federal Reserve session ends in Washington, Thailand's Monetary Policy Committee (MPC) voted 7-0 to leave the one-day repurchase rate at 1.50 per cent - where it's been since April. "The Committee assessed that monetary conditions and exchange rate remain supportive to the economic recovery. Moreover, given financial stability considerations and a potential rise in financial market volatility due to monetary policy divergence among advanced economies, the policy interest rate should be kept unchanged," the MPC said at Wednesday's meeting.

All but one of 20 economists polled by Reuters had predicted the rate would be held. One expected a 25 basis point cut.

Capital Economics said that with price pressures still very weak and only a gradual economic recovery likely, "we can safely rule out interest rate hikes for the foreseeable future, even if the Fed starts to raise rates this week." Tim Leelahaphan, economist of Maybank Kim Eng Securities in Bangkok, said the window for Thai rates cuts "has already closed" with the expected Fed hike and how government spending is a better tool to boost growth.

He said he expects a 25 basis point hike in 2016 that "could be for stemming portfolio outflows in search of higher yields".

The Thai army seized power in May 2014 to end prolonged political unrest but has since struggled to pull South-east Asia's second-largest economy out of a rut, with exports and domestic demand persistently weak. Growth was just 0.9 per cent last year.

In a bid to boost activity, the junta approved stimulus measures aimed at helping rural areas, small firms and the property sector. It has also focused on driving big public investment projects.

Policymakers are hoping stimulus will lift activity and a weak baht will boost exports. The baht has depreciated about 8.8 per cent against the dollar this year.

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