MPC eyes lower growth, below 1.5%

Even though the rate-setting committee's latest minutes warned the country's economic growth might be slightly lower than analysts' projection of 1.5%, economists do not expect a policy rate cut to spur economic growth due to the US Federal Reserve's likely rate normalisation in the near future.

"For 2014 and 2015, the Thai economy was projected to expand at a pace close to the previous assessment. Economic growth for 2014 may be slightly lower than previously expected due to delays in government spending," the Bank of Thailand's Monetary Policy Commitee (MPC) said in its edited minutes from the Aug 6 policy rate call.

"However, private investment and exports should lend greater support to growth the following year."

The MPC unanimously voted to leave its benchmark interest rate unchanged at 2% for a third straight meeting.

In June, the central bank slashed its 2014 economic growth forecast to 1.5% from 2.7% and forecast GDP growth of 5.5% next year.

However, its last meeting came before the National Economic and Social Development Board (NESDB) reported a surprise upswing in the second quarter, which helped Thailand to avoid a technical recession.

The government think tank reported Thailand's economy in the second quarter expanded by 0.4% year-on-year and 0.9% quarter-on-quarter.

The NESDB still trimmed its growth forecast this year to between 1.5% and 2% from a range of 1.5% to 2.5% in May.

Charl Kengchon, managing director of Kasikorn Research Center, said the MPC had no need for a looser monetary policy since it forecast economic growth of 3-4% in the second half and announced an economic recovery would drive GDP growth to 5.5% next year.

The central bank is not expected to lower its economic growth forecast this year from 1.5% since it is below the NESDB's outlook, said Mr Charl, adding that public investment was expected to begin in the fourth quarter.

Benjarong Suwankiri, a first vice-president and team head of TMB Analytics, said the central bank does not have excessive financial tools to use in stimulating substantial economic growth. The current policy interest rate should support the economic recovery.

He said greater emphasis should be placed on exchange rate volatility due to a possible interest rate hike by the Fed once it reined in its monetary stimulus measures, which would probably be in October.

Kampon Adireksombat, head of Tisco Securities' economic strategy unit, agreed the central bank would not cut its economic growth forecast this year.

The MPC may have been concerned with approval of the fiscal-2015 budget disbursement, but the National Legislative Assembly recently approved the budget, he said, adding that the policy interest rate should be normalised next year, depending on the progress of economic recovery.

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