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Thailand Monetary Policy November 2018

Thailand: Bank of Thailand stays put in November, but a rate hike remains on the cards

Hawkishness continues to grow among the members of the Monetary Policy Committee of the Bank of Thailand, despite leaving the one-day repurchase rate unchanged at 1.50%, where it has been for over three years. Although the decision was largely in line with market expectations, three members of the seven-strong committee voted in favor of a 25-basis points rate hike, which would have brought the rate up to 1.75%. At the previous meeting in September two members supported a rate hike, while one member voted to raise the rate at the August meeting.

The decision was taken amid slowing growth of tourist arrivals and worries over moderating external demand as the trade spat between the United States and China weighed on export growth. Moreover, although the Bank’s inflation expectations remained broadly unchanged from the previous meeting, downside risks to the inflation outlook are mounting. Of particular note, the Bank voiced that it is necessary to keep an eye on the possible build-up of vulnerabilities in the financial system going forward, “especially those resulting from the prolonged period of monetary accommodation”.

Three members therefore voted in favor of a hike to prevent the unnecessary build-up of financial risk in the economy, which could derail economic momentum. They argued that “the continued economic expansion was sufficiently robust and that prolonged monetary accommodation induced households and business to underestimate potential changes in financial conditions”.

In its press release, the Bank of Thailand struck a similar tone compared to its previous meeting. While stating that the current policy stance remained conducive to growth, “the need for currently accommodative monetary policy would be gradually reduced”. With the next monetary policy meeting scheduled for 14 December, the clear majority of the FocusEconomics Consensus Forecast panel expects the Bank to raise the one-day repurchase rate to 1.75%.

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