Thai rate-hike backers warn of bigger financial risks - central bank minutes

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Thai rate-hike backers warn of bigger financial risks - central bank minutes

 

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

 

BANGKOK (Reuters) - Three members of Thailand's monetary policy committee who argued unsuccessfully for a rate hike this month said it would curb financial risks at a time growth remained strong enough, minutes of the central bank meeting showed on Wednesday.

 

On Nov. 14, the committee voted 4-3 to leave the Bank of Thailand (BOT)'s one-day repurchase rate <THCBIR=ECI> at 1.50 percent, where it has been since April 2015.

 

But the three votes on the seven-member committee for a quarter-point hike reinforced market viewsThailand may start tightening at its Dec. 19 meeting. The last hike was in 2011.

 

On Nov. 14, most committee members felt the existing "accommodative" policy stance remained necessary to support continued economic growth, the minutes said.

 

But according to the minutes, others took the view that the economy "was sufficiently robust and would not significantly slow down" if there was "a gradual reduction" in the degree of accommodation that would reduce financial stability risks.

 

Thai household debt and bad loans remain at high levels, while credit quality of mortgage loans has yet to improve, the minutes said. The prolonged low interest rate could affect savings and induce households and businesses to underestimate potential changes in financial conditions, they added.

 

The minutes said that some committee members felt vulnerabilities in the financial system started to "become more widespread" due partly to the prolonged low interest rate environment.

 

In the committee's view, if economic expansion continues and inflation move within the target, "the need for currently extra accommodative monetary policy would start to be gradually reduced" while the need for "policy space" to cushion against possible risks to growth would rise, the minutes said.

 

After the Nov. 14 meeting, Thailand reported weaker-than-expected third quarter growth, but recent BOT comments still indicate the central bank is inclined to hike rates soon.

 

(Reporting by Orathai Sriring; Editing by Richard Borsuk)

 

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