BANGKOK: Thailand’s central bank is expected to keep its benchmark interest rate unchanged near record lows on Wednesday, shrugging off calls from the government and businesses for a cut to contain the strength of the baht.
The Bank of Thailand (BoT) has said monetary policy still supports the country’s economic recovery. Though inflation has remained weak, high household debt is limiting its room to lower borrowing costs further.
The baht has risen by 8% against the dollar this year, the most among Asian currencies, with foreign investors buying 331 billion baht (US$9.99 billion) net of government debt and US$359 million of equities.
So far, exports seem to have weathered the stronger currency, with August shipments jumping 13.2% on-year, but the government is worried that exports could take a hit in 2018 if the baht continues to climb.
All but one of 22 economists in a Reuters poll predicted the BoT’s one-day repurchase rate will stay at 1.50% - where it has been since April 2015 - when its monetary policy committee meets on Sept 27.
ING forecast a quarter-point cut, citing a need to stem the baht appreciation pressure to preserve export competitiveness.
The finance ministry and business groups have called on the central bank to cut rates further for the same reasons. That could affect votes among the seven MPC members - the BoT governor and two deputies plus four external appointees.
Monetary policy is decided by a majority vote.
“If the central bank did cut rates, it would be a clear signal that its independence was under threat,” said Gareth Leather, economist of Capital Economics.
All but one of 13 analysts in the poll who gave a view on year-end rates expected no change throughout 2017.
HSBC’s official view is for no change, but risk-reward is biased towards easing, said Andre De Silva, head of global emerging markets rates research.
“Thailand’s CPI is barely in positive territory and the degree of currency appreciation is similar to 2013 when the Thai baht independently outperformed its peers and we saw rate cuts.”
Annual headline consumer prices rose 0.32% in August, below the central bank’s 1%-4% target range. The BoT has said that has been driven by supply-side factors.
BoT governor Veerathai Santiprabhob recently said the MPC would consider not only inflation but risks to the economy.
The central bank said last week it had taken action against what it said was ”periodic speculation” in the baht as the currency hovered at more than 28-month highs against the US dollar.
Growth in South-East Asia’s second-largest economy has picked up but still lags regional peers. The BoT may upgrade its 2017 growth forecast of 3.5% on Wednesday. Last year’s growth was 3.2%. - Reuters
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