Bank of Thailand Maintains Status Quo on Monetary Policy in December

No rate change in December

The Bank of Thailand, Thailand’s central bank, maintained the level of its policy rate in its December meeting. The rate, which stands at 1.5%, was kept unchanged for the 13th consecutive meeting. The vote was unanimous.

Apart from maintaining its policy rate, the central bank also kept its forecasts for the pace of economic growth in 2016 and 2017 unchanged. The country’s economic growth had stood at 2.8% in 2015 and the central bank estimates it to rise to 3.2% this year and maintain this pace in the next.

Economic growth pace

While laying out that it expects the economy to remain on the path it had projected earlier, the Bank of Thailand noted that exports have benefitted the local economy. Given the consolidation of production location of certain goods to Thailand, exports had received a leg up. Economic growth also received support from household spending because of farm income.

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The central bank expects exports to decline by just 0.6% in 2016 compared to a previous estimate of a 2.5% contraction. Meanwhile it expects exports to be flat the next year compared to a 0.5% decline estimated earlier.

Stimulus measures by the government were also quite helpful, with the central bank noting that “public expenditure remained an important growth driver for the economy.”

On the other hand, a crackdown on illegal tour operators has impacted tourism, with negative repercussions on economic growth. Meanwhile, private investment has also remained low.

Inflation forecast

The Bank of Thailand targets an inflation rate range of 2.5% (+ or -) 1.5% in the medium-term. Even with this relatively wide range, inflation remains quite low. For November 2016, prices rose by 0.6% year-on-year.

The central bank expects headline inflation to return to its target range in Q1 2017. However, it qualified this by saying that the pace of price rise will depend on oil and fresh food prices. It stated that while core inflation remained stable, medium-term inflation expectations were close to the target level.

The Bank of Thailand reduced its inflation-rate forecast for 2016 to 0.2% from 0.3%, and for 2017 to 1.5% from 2.0% estimated earlier.

There are certain risks to Thailand’s economic well-being. Let’s assess those risks in the next article.

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