Thailand: Central Bank stands pat in September but hints at future rate hikes
September 19, 2018
At its 19 September Monetary Policy Committee meeting, the Bank of Thailand opted to maintain the one-day repurchase rate at 1.50%, where it been for over three years. The decision was in line with market expectations. However, the vote was not unanimous and the Committee appears to be becoming increasingly hawkish. At this meeting, two members voted for a rate hike to 1.75%, compared to just one at the previous meeting held on 8 August.
The decision to stand pat comes amid mild price pressures, with inflation at the lower part of the Bank’s 1.0%-4.0% tolerance band. In addition, the Thai baht has been relatively unaffected by the broader emerging market selloff that has his hit neighboring countries, meaning the Bank wasn’t under pressure to hike rates to support the currency. Moreover, the Bank considered its current stance appropriate to continue supporting the economy, particularly as downside risks are mounting. A day before the Committee met, U.S. President Donald Trump announced a new round of tariffs on Chinese goods to which China immediately responded with retaliatory countermeasures. The effects of the escalating trade tensions between the United States and China could spillover and dent Thailand’s export growth.
On the other hand, the two members who voted to hike rates argued that the current expansion was sufficiently robust to warrant monetary tightening, and that the continuation of the loose monetary stance risks an accumulation of debt, which will be harder to service when rates rise. This could threaten economic growth in the longer term.
Regarding forward-looking guidance, the Bank of Thailand hinted at rate hikes going forward, noting that “monetary policy should remain accommodative, although the need for currently accommodative monetary policy would be gradually reduced”. A slim majority of FocusEconomics Consensus Forecasts panelists expect at least one rate hike this year, while nearly all panelists foresee at least one hike by the first half of next year. The split vote at September’s meeting suggests a rate hike could be on the cards before year-end, with two more meetings scheduled for November and December.
Thailand Interest Rate Forecast
FocusEconomics Consensus Forecast panelists expect the one-day repurchase rate to end 2018 at 1.64%. In 2019, the panel expects the monetary policy rate to end the year at 1.93%.
Author: Jan Lammersen, Economist