Thai central bank seen holding key rate again to aid recovery

BANGKOK: Thailand's central bank on Wednesday will likely keep its already-low benchmark rate where it has been for more than two years as the economy is slowly recovering and inflation is tame.

All 19 economists polled by Reuters forecast the Bank of Thailand (BoT)'s one-day repurchase rate will be kept at 1.50% when its monetary policy committee (MPC) meets.

The rate has been unchanged since a cut in April 2015 and is just 25 basis points above the record low reached in 2009.

The BoT has said monetary policy still supports economic recovery and government spending remains a key driver of growth while high household debt, at nearly 80% of gross doemstic product (GDP), is still a concern.

Last week, large Thai banks cut loan rates for some customers, which should ease pressure on the central bank to ease monetary policy.

In January-March, South-East Asia's second-largest economy grew at its fastest quarterly pace in four years, but it has still lagged regional peers for years.

"Stoking domestic demand is not a function of interest rates at this junction, but rather confidence," said Kobsidthi Silpachai, head of capital markets research at Kasikornbank.

In the poll, 15 of 17 analysts forecast no rate change through 2017 while the other two saw a hike in the second half to contain fund outflows if the United States keeps raising rates.

But analysts see no need to raise at the moment, as inflation is low and a hike would strengthen the baht, which has appreciated by more than 4% against the dollar this year.

"Below-target inflation and unfavourable baht strength this year will remain the key obstacles preventing the MPC from turning more hawkish, at least in the near term," said Sarun Sunansathaporn, economist at Bank of Ayudhya.

Annual headline inflation was only 0.38% in April, below the BoT's 1%-4% target range.

At its March 29 review, the MPC said sufficiently accommodative monetary policy remained necessary given that economic growth was still in the early stages and not yet broad-based.

The BoT has forecast economic growth of 3.4% this year, after 3.2% last year. - Reuters