Thai raises 2017 growth forecast again, holds key rate steady

BANGKOK: Thailand’s central bank raised its forecasts for 2017 economic growth and exports on Wednesday, while leaving its key interest rate unchanged, shrugging off calls from the government and businesses for a cut to hold down the baht’s strength.

As widely expected, the Bank of Thailand’s (BOT) Monetary Policy Committee on Wednesday voted to keep the one-day repurchase rate at 1.50%, just a quarter-point above the record low.

The vote was a unanimous 6-0. One member was absent.

The committee reiterated its long-held view that the current rate supports the country’s economic recovery, and that domestic liquidity is ample, while citing pockets of risk.

Thailand’s economy has gained further traction thanks to stronger exports and tourism, while private consumption continued to expand, it said.

The central bank once again upgraded its 2017 economic growth forecast, to 3.8% from 3.5% seen in July.

It predicted 3.8% growth for 2018, up from 3.7% seen earlier.

The economy grew 3.2% last year.

“Thailand’s growth outlook improved further on the back of external demand while strength in recovery of domestic demand must be monitored,” it said in a statement.

The central bank also raised its export forecast again. It now expects shipments to rise 8% this year, compared with 5% seen earlier.

Exports, a key growth driver, rose 8.9% in January-August from a year earlier.

So far, a stronger currency has not seemed to dent Thailand’s export competitiveness, but the government is worried that trade and economic growth could take a hit in 2018 if the baht continues to climb.

The baht has appreciated 7.6% against the greenback this year, the most among Asian currencies.

But the MPC said the baht’s moves relative to those of its main trade partners were largely unchanged.

Still, the MPC warned market volatility could flare due to external factors, including uncertainties over monetary policy in the United States and other major economies.

The central bank said last week it had taken action against what it said was ”periodic speculation” in the baht as the currency hovered at more than 28-month highs against the US dollar.

All but one of 22 economists polled by Reuters had predicted the benchmark rate would be kept at 1.50% – where it has been since April 2015.

ING forecast a quarter-point cut, citing a need to stem the baht’s appreciation pressure and its potential impact on exports.

The finance ministry and business groups have called on the central bank to cut rates for the same reason.

“The Fed, along with exports on firmer footing has saved the BOT’s bacon,” said Kobsidthi Silpachai, head of capital markets research of Kasikornbank.

“The unanimous decision shows cohesion within the MPC which should signal to foreign investors to price out possibility of a rate cut as well as to abstain from further extending duration in Thai bonds.”

Gareth Leather of Capital Economics said: ”Even if growth does hold up better than we think, the BOT is unlikely to be in any rush to hike interest rates.”

Growth in South-East Asia’s second-largest economy has picked up but still lags regional peers.

The central bank also cut its 2017 headline inflation forecast to 0.6% from 0.8% seen previously, below its 1-4% target.

The central bank expects headline inflation to return to the target band by the middle of 2018. – Reuters