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Thailand Monetary Policy June 2019

Thailand: Bank of Thailand stands pat in June

In a unanimous vote at its 26 June meeting, the Monetary Policy Committee of the Bank of Thailand stood pat and left the policy rate unchanged at 1.75%.

The decision reflected unchanged inflation expectations from the prior meeting, although the Bank expects economic momentum to wane somewhat this year amid a harsher external environment affecting exports. Trade tensions between the United States and China are seen not only leaving their mark on trade but also on the tourism sector, with tourist arrivals likely to grow at a softer pace due to less Chinese tourists. Private consumption, meanwhile, is seen expanding at a more moderate pace, as elevated household debt and weaker growth in incomes and employment limit household expenditure. While these factors will likely put downward pressure on inflation, the Committee stated that “structural changes” should continue to exert upward pressure and keep inflation within the target range. These changes mainly refer to the expanse of e-commerce, more price competition and technological development.

In the accompanying press release, the Bank of Thailand was more dovish, stating that it would to keep a close eye on external risks to the outlook. In its prior statement, the Committee noted that “the current accommodative monetary policy stance would remain appropriate.”

Meanwhile, on 12 July, the Central Bank unveiled measures to stem the appreciation of the Thai currency, after the baht appreciated 5.4% in year-to-date terms on the same day, while it was up 8.3% from the same day in 2018. In its press release, the Bank stated that the strength of the baht relative to regional peers “could lead to unfavorable macroeconomic repercussions”. Particularly, Thai export price competitiveness and the country’s status as a cheap holiday destination in Asia are likely to feel the pinch from a strong currency. Looking forward, although the appreciation was in part due to short-term speculation amid heightened financial-market volatility, the country’s large current account surplus will continue to support the currency irrespective.

In efforts to combat “short-term speculative flows”, the Bank thus reduced the limit on outstanding balances of non-residents from THB 300 million to THB 200 million, effective 22 July. It also enhanced the reporting requirements for non-residents’ holdings of debt securities issued in the country, while the end beneficiaries of these holdings are required to be disclosed—effective as of the July reporting period. In its press release, the Bank of Thailand concluded that it “will continue to closely monitor the Thai baht movements as well as non-resident behaviors, and stand ready to use additional measures if undesirable speculative behaviors persist”.

The next monetary policy meeting is scheduled for 7 August.

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