Thai central bank holds rates again, but many see a hike soon

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Thai central bank holds rates again, but many see a hike soon

By Orathai Sriring and Kitiphong Thaichareon

 

FILE PHOTO: Thailand's central bank is seen at the Bank of Thailand in Bangkok, Thailand April 26, 2016. REUTERS/Jorge Silva

 

BANGKOK (Reuters) - Thailand's central bank held its benchmark interest rate steady on Wednesday as expected, but a widening split on the decision-making committee bolstered views that next month it could tighten policy for the first time in more than seven years.

 

The Bank of Thailand (BOT)'s monetary policy committee (MPC) voted 4-3 to hold its one-day repurchase rate <THCBIR=ECI> at 1.50 percent to support Southeast Asia's second-largest economy, which is continuing to gain traction despite slowing external demand.

 

The rate, unchanged since April 2015 and not hiked since August 2011, is just above the record low of 1.25 percent set during the global financial crisis.

 

On Wednesday, three members voted for a quarter-point increase, arguing that economic expansion was "sufficiently robust" and that a hike would curb financial stability risks that could affect longer-term economic growth and create room for changing policy later.

 

In September's meeting, two members voted for a rate increase, compared with one at August and June meetings.

 

After Wednesday's vote, the MPC said it felt "monetary policy should remain accommodative, although the need for currently accommodative policy would be gradually reduced,"

 

In a Reuters poll, 19 of 22 economists had predicted the MPC would stand pat on Wednesday. The others forecast a 25 basis points (bps) rise.

 

Charnon Boonnuch, economist of Nomura in Singapore, said the split vote supports his view the MPC will hike at its Dec. 19 meeting, just before this year's last U.S. Federal Reserve decision.

 

Kobsidthi Silpachai, head of capital markets research of Kasikornbank, said MPC members are concerned about building "policy space" should the next downturn arrive earlier than expected.

 

But given a "plethora of uncertainties", including the U.S.-China trade war and Brexit, "waiting to tighten early next year seems a more optimal choice," he said.

 

NO IMMEDIATE PRESSURE

With a hefty current account surplus and low inflation, Thailand is under no immediate pressure to follow rising U.S. interest rates, unlike Indonesia and India - which have current account deficits and fragile currencies.

 

Yet in the Reuters poll, 10 of the 16 analysts who gave a view predicted a 25 bps hike on Dec. 19. The other six no change.

 

The BOT last raised its policy interest rate in August 2011, by a quarter-point to 3.50 percent.

 

Growth in Southeast Asia's second-largest economy has picked up but remains heavily reliant on external demand. Exports have slowed while tourism has been hit by reduced numbers of Chinese visitors.

 

Last month, the central bank said growth in the July-September quarter likely slowed from the April-June pace.

 

Third-quarter GDP data is due on Nov. 19.

 

The BOT has forecast 4.4 percent growth this year. Last year's expansion was 3.9 percent, the best in five years.

 

The central bank said the baht <THB=TH> would remain volatile.

 

The baht traded at 32.88 against the U.S. dollar at 0733 GMT. It has depreciated 0.9 percent this year, making it Asia's best performing currency.

 

(Editing by Richard Borsuk)

 

-- © Copyright Reuters 2018-11-15

[SheungWan]

One factor to consider is the overhang of personal debt in the Thai economy (figures?) and the effect of a rate hike just before a scheduled election?

[IAMHERE]

Will the $ to baht ratio change ?  Up or down, down being less baht per dollar.

[bomber]

7 hours ago, IAMHERE said:

Will the $ to baht ratio change ?  Up or down, down being less baht per dollar.

It wont change much either way

[simoh1490]

7 hours ago, IAMHERE said:

Will the $ to baht ratio change ?  Up or down, down being less baht per dollar.

No,