Thailand central bank holds key rate

The Bank of Thailand in Bangkok.
The Bank of Thailand in Bangkok. PHOTO: REUTERS

BANGKOK (REUTERS) - Thailand's central bank left its key interest rate unchanged on Wednesday, as expected, and marginally raised its 2016 growth forecast but also projected that next year will be the fifth straight in which exports shrink.

It said current monetary policy still supports economic recovery and there's a need to "preserve policy space given that the Thai economy would still be facing greater uncertainties going forward".

The Bank of Thailand's Monetary Policy Committee (MPC) voted unanimously to keep the one-day repurchase rate at 1.50 per cent, where it has been since April 2015.

The BOT marginally increased its 2016 economic growth forecast to 3.2 per cent, from 3.1 per cent seen three months ago, and kept next year's growth projection at 3.2 per cent.

It also maintained its 2016 export forecast at -2.5 per cent while predicting they will slip 0.5 per cent next year, rather than not change from 2016.

Traditionally, exports has been a key driver of growth, but they have contracted in each of the past three years.

Krystal Tan of Capital Economics said that she doubts the improvement in growth seen in the second quarter - an annual rate of 3.5 per cent - will last. "With growth set to slow and inflationary pressures very low, further easing is likely in the coming quarters," she wrote.

Jack Chambers, economist at Moody's Analytics, said there could be a cut before year-end. Thailand has two more policy meetings in 2016.

The BOT predicted headline inflation of 0.3 per cent this year compared with 0.6 per cent seen in June. For next year, it now expects 2.0 per cent rather than 2.2 per cent forecast earlier.

Although the May 2014 coup ended months of political unrest, the junta has struggled to revive Southeast Asia's second-largest economy as exports and domestic demand remain sluggish.

Tourism, accounting for 10 per cent of Thai GDP, has been a rare bright spot. But bombings in resort towns in August could hurt the industry.

The central bank cut its forecast for tourist arrivals by 400,000 to 33.6 million this year due to the bombings, a crackdown on "zero-dollar" tours and economic problems of trading partners.

This year, strength of the baht has sparked some calls for the central bank to weaken it, but the currency touched a more than one month-low against the dollar on Wednesday. The baht has appreciated about 3 per cent this year.

The baht "will still be on the MPC's radar and the central bank will closely monitor players in the market," Assistant Governor Jaturong Jantarangs told reporters.