By Kosaku Narioka
Thailand’s central bank held its policy rate steady, defying pressure to start easing as the economy begins to show tentative signs of life.
The Bank of Thailand said Wednesday that its monetary policy committee voted 6-to-1 to keep its one-day repurchase rate unchanged at 2.50%. The move keeps the rate in the Southeast Asian country at a decade high.
One member voted to cut the rate by 25 basis points partly to alleviate borrowers’ debt-servicing burden.
Economists zeroed in on the voting turnout, which was viewed as suggesting a slight hawkish tilt. In April’s meeting, two members had voted for a cut.
“I think this would classify as a ‘hawkish hold,’ even by the BOT’s standards,” said Euben Paracuelles, chief Asean economist at Nomura, noting that the vote suggests that the bar for a rate cut has risen.
Stronger-than-expected first-quarter growth may have made the BOT more comfortable with the economic outlook, but “whether the improvement is sustained remains an open question,” Paracuelles said.
The country’s gross domestic product in the first quarter rose 1.5% from a year earlier, driven by private consumption and tourism.
Five of the seven economists polled by The Wall Street Journal had expected the central bank to stand pat, while two had expected a cut of a quarter of a percentage point.
Wednesday’s decision has poured cold water on dovish hopes, Barclays economist Shreya Sodhani said in a note.
Despite repeated government calls for a rate cut, Barclays doesn’t view recent inflation and economic activity data as suggesting that conditions are ripe for easing.
“One month’s high inflation and better domestic growth does not mean a sustainable recovery is underway,” Sodhani said, adding however that the data provides support to the BOT’s stance of staying on hold.
For Maybank economists, the direction of travel signals even less likelihood that borrowing costs will be lowered any time soon.
“We no longer think the BOT will cut this year,” said economist Erica Tay, now penciling in the start of easing in 2025.
Economists at CIMB Treasury & Markets Research have also scrapped their forecast for a 2024 rate cut.
The decision to stand pat comes as the central bank weighs concerns about high household debt, the Thai baht’s weakness and uncertainty about government stimulus efforts that will have an impact on the economy.
The BOT said Wednesday that the committee had concerns over the levels of household debt.
Thailand’s postpandemic economic recovery has been among the weakest in Southeast Asia, but there have been some recent signs of mild improvement.
The central bank said in its monthly report that the economy improved in April from the previous month as the services sector expanded thanks to an improvement in tourist arrivals.
On Wednesday it maintained its economic growth forecasts for 2024 and 2025 at 2.6% and 3.0%, respectively.
On the currency front, the baht continues to struggle to gain ground against the dollar. The Thai currency was recently at THB36.70 per dollar after hitting the weakest level in a year and a half in May.
The country’s consumer-price index rose 1.5% in May from a year earlier, compared with the central bank’s inflation target range of 1.0%-3.0%.
The Thai central bank said Wednesday that headline inflation is anticipated to gradually return to its target range by the fourth quarter of 2024.
The BOT last raised its policy rate in September last year after parliament picked real-estate tycoon Srettha Thavisin as the new prime minister after nearly a decade of army-backed rule. Srettha, who had promised to boost the economy via stimulus measures, has repeatedly called for a central-bank rate cut.
The Thai central bank raised its policy rate by a total of 2 percentage points to a 10-year high over a period of a little more than one year, partly to respond to a surge in inflation triggered by the Russia-Ukraine war and the recovery from the pandemic.
Wednesday’s decision keeps the BOT in line with many of its peers in the region, who have refrained from starting rate cuts before the Federal Reserve. Economists cite potential concern about unfavorable rate differentials pressuring currencies as a factor behind the reluctance to cut ahead of the Fed. Bank Indonesia in fact raised rates in April unexpectedly to support its currency.
Focus now turns to the Fed meeting, with the U.S. central bank widely expected to stand pat. Markets are watching for clues as to the Fed’s policy path, which will likely shift expectations for Asian central bank moves as well.
“[The FOMC meeting] will have a strong bearing on the trajectory for Asian currencies and monetary policy for the next 12 months,” said Maybank’s Tay.
–Additional reporting by Fabiana Negrin Ochoa
Write to Kosaku Narioka at [email protected]
(END) Dow Jones Newswires
06-12-24 0739ET
