Policy rate set to stay unchanged

The central bank is likely to keep Thailand's policy interest rate unchanged tomorrow as the economy improves, say economists.

Most economists predict the Bank of Thailand’s Monetary Policy Committee (MPC) will stand firm after its seven members voted unanimously to hold the benchmark rate at 2% last month as political stability returned and fiscal policy resumed.

Central bank governor Prasarn Trairatvorakul earlier said monetary policy reflected confidence in Thailand's financial market, citing a relatively stable foreign exchange rate and affirmed sovereign credit rating as examples.

Charl Kengchon, managing director of Kasikorn Research Center, said the economic outlook was improving, and current monetary policy should support the pace of recovery. "It's not necessary to implement additional stimulus for monetary policy," he said.

Inflation is at a manageable level, leading the MPC to maintain its monetary policy stance, said Mr Charl.

He also expects the committee to stand pat on its 2% policy interest rate through the rest of this year.

Since the US Federal Reserve is expected to halt its monetary stimulus programme in October and global markets have speculated that its funds rate will be raised in mid-2015, the MPC is expected to raise it benchmark interest rate at the same time or after the Fed's rate hike, said Mr Charl.

But he said the MPC would have to monitor the timing in case the Fed decided to raise its rate in next year's first quarter, as this would affect fund flow volatility in financial markets.

Mr Charl said the Bank of Thailand’s 2015 economic growth forecast of 5.5% would also determine the rate decision, as the level of growth would contribute to the MPC’s decision about whether to maintain its relaxed monetary policy.

Benjarong Suwankiri, a first vice-president and team head of TMB Analytics, agreed the MPC would maintain its policy interest rate, as the economic outlook was set to improve, albeit gradually, in the second half of this year.

Inflation is not the main concern for the committee’s decision, he said.

Mr Benjarong expects a rate hike in the second half of next year due to pressure on the baht coming from a hike in the Fed rate, inflationary pressure and normalised economic conditions in terms of exports and public investment.

Kobsak Pootrakul, an executive vice-president of Bangkok Bank, said the pace of economic recovery might still face risks from uncertainty regarding reforms. It will take three or four months to achieve a decent economic recovery, he said.

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