Thailand’s Central Bank Holds Benchmark Interest Rate Steady

Thailand’s Central Bank held its benchmark interest rate steady at an all-time low and also cut its forecasts for economic growth. Also saying it was gauging whether further efforts were needed to restrain the local currency.

The central bank kept its policy rate at 1.25% on Wednesday in a unanimous decision. All 23 economists in a Bloomberg survey predicted a hold after two rate cuts earlier this year.

“A key takeaway from this meeting is that the central bank’s primary reaction function in the near term will be the Thai baht,” HSBC Holdings Plc economist Noelan Arbis said after the decision. Concerns about baht strength “were more prominent at today’s meeting than concerns regarding growth or inflation.”

Authorities have been struggling to temper gains in the currency, which has climbed more than 8% against the dollar over the past year, hurting Thailand’s export-oriented economy. Aside from rate cuts, the central bank has imposed measures to counter short-term inflows and relaxed rules to spur outflows.

Thai economy on course for slowest growth since 2014

Bank of Thailand Assistant Governor Titanun Mallikamas told reporters the Monetary Policy Committee will monitor how the baht responds to those steps and decide if it needs to do more. The currency fell slightly after the decision, from 30.243 to the dollar to 30.264, while local equities were little changed.

Slow Ride

Thailand is on track for its slowest economic growth since 2014, facing headwinds including the U.S.-China trade dispute and political uncertainty. Inflation remains well below the 1%-4% annual target, prompting the central bank to propose narrowing the range next year.

The central bank adjusted its forecasts as follows on Wednesday:

lowered its economic growth forecast for this year to 2.5% from 2.8% previously, and to 2.8% in 2020 from 3.3%
cut the 2019 inflation forecast to 0.7% from 0.8%, and to 0.8% from 1% for 2020
cut the export forecast to a 3.3% contraction this year, compared to a prior forecast of a 1% drop. The export forecast for 2020 was lowered to 0.5% growth, from 1.7%

The committee said that “more accommodative monetary policy in the recent period would contribute to economic growth. It would also support the rise of headline inflation toward the target.”

What Bloomberg’s Economists Say

“The Bank of Thailand’s decision to leave policy unchanged on Wednesday doesn’t mean its work to temper baht gains is complete. It signaled willingness to act further, if necessary, using ‘appropriate’ tools to rein in the currency. We think this will entail more measures to manage capital flows, rather than more rate cuts, in 2020.”

Bank of Thailand Governor Veerathai Santiprabhob has indicated there’s scope for more policy easing if growth disappoints, but has warned against opting for negative interest rates.

Jitipol Puksamatanan, chief strategist at Krung Thai Bank in Bangkok, said he expects the central bank to stay on hold until the Federal Reserve next cuts U.S. interest rates — something Fed officials have indicated won’t happen anytime soon.