Thai central bank ready to adjust rates if significant change to 'uncertain' economy

Thailand’s policy rate was consistent with sustaining growth, but the economic outlook was uncertain, and the central bank is ready to adjust rates if the economy and inflation changes significantly, minutes of its Feb 7 policy meeting showed on Wednesday (Feb 21).

At the meeting, the Bank of Thailand’s (BOT) monetary policy committee voted 5-2 to hold the one-day repurchase rate steady at 2.50 per cent, the highest in more than a decade. Two members favoured a quarter-point cut.

Most members agreed maintaining the policy interest rate at the current neutral level would help promote sustainable growth, which would require financial stability as a key pillar, the minutes said.

“At the same time, any monetary easing cannot resolve structural impediments, a key root cause of lacklustre growth,” the minutes said.

However, the bulk of members highlighted “the need for policy to be flexible and attuned to the evolving growth and inflation outlook and associated assessments”, the minutes said.

Two rate-cut backers viewed that the level of neutral interest rate might have significantly declined from the lower potential growth rate amid intensifying structural impediments, the minutes said.

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Those two members thought a more accommodative policy stance, despite having limited impact on growth, could help mitigate downside risks to the economy, particularly if slower-than-expected recovery in export and manufacturing were to affect employment and put at risk private consumption sustainability, the minutes said.

The BOT’s next meeting is scheduled for April 10.

On Tuesday, Prime Minister Srettha Thavisin said the economy was in a critical condition and again urged the central bank to cut interest rates before the next scheduled meeting, advocating a 25 basis points reduction.

Srettha has been at loggerheads with the BOT governor over what he considers a high rate, but the central bank has so far resisted his almost daily public calls for a rate cut.

The state planning agency chief this week reinforced calls for a rate cut after South-east Asia’s second-largest economy unexpectedly shrank 0.6 per cent in the final quarter of 2023 from the third and the government downgraded the 2024 growth outlook to 2.2 per cent to 3.2 per cent from a previous forecast of 2.7 per cent to 3.7 per cent. REUTERS