Thailand Holds Key Rate Again as Economy, Inflation Pick Up

(Bloomberg) -- Thailand’s central bank left its key interest rate unchanged for the fourth straight meeting as an improving economy and a pick-up in inflation gave it more legroom to resist the government’s calls to ease policy.

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The Monetary Policy Committee voted 6-1 to maintain the one-day repurchase rate steady at a decade-high 2.50% at Wednesday’s meeting, as predicted by 21 of the 24 economists surveyed by Bloomberg. The dissenting committee member voted to lower the rate by a quarter point, citing structural challenges to Thailand’s recovery and the debt-servicing burden on borrowers.

“The majority of the committee deems that the current policy interest rate is consistent with the economy converging to its potential, as well as conducive to safeguarding macro-financial stability,” it said in a statement.

The baht was up 0.2% at 36.67 per dollar after the decision, trimming losses so far this year to 6.9%. The benchmark SET index of stocks rose 0.2%, rebounding from near a four-year low.

The hold decision comes even after the government revived calls for a quarter-point cut, saying the policy rate is “too high” and not fully aligned with the nation’s strategy to spend and boost growth. Prime Minister Srettha Thavisin and his officials have repeatedly hankered for lower borrowing costs to support Southeast Asia’s second-largest economy, which has expanded at a rate of less than 2% over the past decade.

However, the voting on Wednesday tilted further towards a pause with only one member dissenting the decision. That compared with a vote of 5-2 in favor of holding the rate in the past two meetings.

The current policy rate is neutral and supportive of fiscal policies, Assistant Governor Piti Disyatat said at a briefing. The central bank and the finance ministry are regularly talking on how to manage the economy, he said.

‘Separating Noise’

“The central bank will need to separate noises from signals,” Piti said. “Interest rate is such a blunt tool. So the policy decision needs to be cautious and taken after looking through the noises.”

With inflation and growth outlooks turning for the better, the BOT has more legroom to keep its policy rate steady throughout the next two years, HSBC Holdings Plc economist Aris Dacanay said in a report.

“The legroom to stick to this long-term agenda will likely widen in the months ahead” with the headline inflation returning to central bank’s target range and growth widely expected to improve with a substantial catch-up spending in budget, Dacanay wrote.

A number of economists including those from Goldman Sachs Group Inc. and CIMB Group Holdings Bhd also have pushed their calls for monetary easing to begin in 2025, if not later this year, helped by stronger economic recovery.

What Bloomberg Economics Says...

The Bank of Thailand scored points for credibility Wednesday, with more members voting in favor of a hold than at the prior meeting. The decision came in the face of increased pressure from the government to cut. We still expect a single 25-basis-point reduction late this year, driven by weaker global demand.

— Tamara Mast Henderson, economist

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Private consumption is more robust than initially thought, now seen growing 4.2% this year, compared to the April forecast of just 3.5%, the central bank said. Coupled with the tourism recovery and improved government spending, it sees gross domestic product growing 2.6% this year. That still falls short of the government’s target of 3% — the fastest pace since 2018 if it materializes.

Headline inflation is seen averaging 0.6% this year, and possibly returning within the BOT’s 1%-3% target by the fourth quarter and onward as the impact of diesel subsidies and excess food supply fade. Price gains are estimated to grow 1.3% in 2025.

Looking ahead, monetary policymakers said they would monitor uncertainty around the exports and manufacturing sectors, as well as the impact of the government’s stimulus measures in the second half of the year. “The Committee will take into account growth and inflation outlook in deliberating monetary policy going forward,” it said.

--With assistance from Patpicha Tanakasempipat, Anuchit Nguyen, Cecilia Yap, Janine Phakdeetham, Michael J. Munoz and Hooyeon Kim.

(Updates with comment from analyst from ninth paragraph.)

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