Bank of Thailand holds rates unchanged


Published — Wednesday 9 January 2013

Last update 10 January 2013 12:50 am

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BANGKOK: Thailand's central bank left its benchmark interest rate unchanged at 2.75 percent yesterday, as expected, saying the global economy continued to recover while growth this year could be higher than thought and inflation was stable.
The central bank said its seven-member Monetary Policy Committee (MPC) unanimously agreed to hold the one-day repurchase rate for the second straight meeting after a surprise quarter-point cut in October.
All 14 economists polled by Reuters had expected no change in the policy rate as Southeast Asia's second-biggest economy is holding up despite global problems.
There is no consensus among economists on the rate outlook for this year, with inflation and credit growth a concern for some but global risks remaining more important for others.
The Bank of Thailand (BOT) said growth in the fourth quarter of 2012 would probably turn out higher than expected, leading it to expect higher growth rates in 2012 as a whole and in 2013.
"Private consumption and investment continued to be the key growth drivers, supported by consumer and business confidence, favorable household income, full employment as well as accommodative monetary conditions with continued high rates of credit growth," the central bank's statement said.
"The export sector showed incipient signs of a broadbased recovery while the service sector and tourism expanded robustly," it said.
Radhika Rao with Forecast in Singapore said: "Accompanying comments give us the sense that the authorities might shift focus to the need to maintain financial stability by way of restraining strong household debt, credit growth and inflows."
Other economists agreed, although Santitarn Sathirathai at Credit Suisse said: "There's no need for the BOT to take action on rates, but it may think about prudential measures to handle household debt if needed."
Some economists are worried about inflation because of a jump in minimum wages plus strong credit growth.
"There have been tentative signs of a turnaround in external demand. Domestically, the pro-growth policies have already translated into strong private consumption numbers over the last few quarters. Coupled with the hike in minimum wages, price pressures are likely to continue building," said Eugene Leow of DBS Bank in Singapore.
A daily minimum wage of 300 baht ($ 9.80) was rolled out across the country on Jan. 1. That meant an increase of up to 35 percent depending on the province, after a nationwide jump of 40 percent last April.
The economy has remained resilient despite global problems because strong domestic demand, as Thailand recovered from floods in late 2011, has helped offset weakness in exports.
Growth in the final quarter of 2012 is bound to be very high compared with a year before due to the low base, economists and officials say.
Given global uncertainty and generally tame inflation, policymakers across Asia have been keeping monetary policy loose to support their economies.
South Korea left interest rates on hold for a second straight month in December after two cuts.
Indonesia has left its policy rate unchanged since February, saying the rate was consistent with low inflation, although it may need to tighten soon to support its currency.
Thailand's central bank has forecast economic growth of 4.7 percent in 2013 after 5.8 percent for 2012. Due to the floods, growth in 2011 was only 0.1 percent.
It has predicted that exports, which are equal to more than 60 percent of GDP each year, will grow 9 percent in 2013 after 4.4 percent in 2012. Thailand is a regional hub and export base for top global car makers and other manufacturers.
Bank of Thailand Assistant Gov. Paiboon Kittisrikangwan told a briefing that the latest wage rises should have only a small impact on inflation.
The BOT has forecast headline inflation of 2.8 percent for 2013, with core inflation, which strips out food and energy prices, at 1.7 percent, well within its target range of 0.5-3.0 percent, which guides monetary policy.
It releases new economic forecasts on Jan. 18.

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