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Thailand Monetary Policy February 2019

Thailand: CB stands pat in February as expected amid softening price pressures

After raising the policy rate at the previous meeting on 19 December, the Monetary Policy Committee of the Bank of Thailand stayed put at its 6 February meeting, keeping the rate at 1.75%. Although the decision was in line with market expectations and the vast majority of the FocusEconomics Consensus Forecast panelists, it was not unanimous, with two of the six members present voting in favor of a 25-basis point hike.

In the accompanying press release, the Committee noted that robust domestic demand was buttressing the Thai economy as global trade tensions and a global economic slowdown drag on export growth. Nevertheless, domestic demand has not been able to keep inflation within the Bank’s 1.0%–4.0% target range owing to cheaper oil and fresh food prices. Inflation averaged below the target range in the final quarter of last year and dropped further to 0.3% in January. Core inflation, which excludes volatile items such as energy prices, has also been trending downwards since September but the Bank expects it to edge up “given the gradually rising demand-pull inflationary pressures”. Softer inflationary pressure gave the Bank space to stand pat in February and to keep the rate at a level that remains “conducive to economic growth”, although it also noted risks to the financial stability in the economy. Most notably, the Committee noted that “developments in the mortgage loan market, adjustments in the real estate sector, growth in assets held by savings cooperative, as well as debt accumulation among households and large corporates […] still warranted monitoring”.

Two members voted to raise the policy rate on the basis that “overall financial conditions would remain accommodative and conducive to economic growth despite an additional 0.25 percentage point increase in the policy rate”. Analysts at Nomura added that “the two dissenting votes came as a surprise […] as the BOT previously signaled a pause after the hike in December”. They also stated that their justification for a rate hike “is in contradiction with the latest data, which show growth and inflation have been disappointing”.

In the accompanying communique, the Committee struck a somewhat dovish tone, stating that the current policy stance is “appropriate in the period ahead” but that it would continue monitoring “developments of economic growth, inflation, and financial stability, together with associated risks”.

The next monetary policy meeting is scheduled for 20 March.

Thailand Interest Rate Forecast

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