Thailand raises key rate after seven years, no more hikes seen soon

[webfact]

Thailand raises key rate after seven years, no more hikes seen soon

By Orathai Sriring and Kitiphong Thaichareon

 

 

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

 

BANGKOK (Reuters) - Thailand's central bank on Wednesday raised its key policy rate for the first time in more than seven years and cut economic growth forecasts while signalling it does not expect further hikes anytime soon.

 

The Bank of Thailand (BOT)'s monetary policy committee (MPC) voted 5-2 to hike its one-day repurchase rate <THCBIR=ECI> by 25 basis points to 1.75 percent. The two dissenters favoured no policy change.

 

The key rate had been 1.50 percent since April 2015, just a quarter-point above the all-time low. The previous time the rate was hiked was August 2011.

 

Even with the increase, monetary policy would remain "conducive" to economic growth, the BOT said, adding the rate was increased to curb financial stability risks stemming from the prolonged low interest rate and to "build policy space" - giving it room to cut the benchmark if global conditions deteriorate.

 

The Thai economy is "projected to continue to gain traction despite the slowdown in external demand. The Committee viewed that accommodative monetary policy would remain appropriate in the period ahead," the MPC said in a statement.

 

Wednesday's increase was expected by 14 of 17 analysts in a Reuters poll, even though concerns over global growth have caused some central banks to pause in hiking cycles.

 

NOT UNDER PRESSURE

But the BOT is one of the last central banks in Asia to tighten monetary policy, as it was not under pressure to follow higher U.S. rates higher, due to Thailand's hefty current account surplus and benign inflation.

 

At November's MPC meeting, three members voted for a hike.

 

Most economists said they doubted Thailand will have a second hike in 2019. Charnon Boonnuch, economist of Nomura in Singapore, called Wednesday's move a "dovish" hike.

 

Kobsidthi Silpachai, head of capital markets research of Kasikornbank, who expected a hold on Wednesday, said the rate partly fulfils the goal of staving off any downturn, "but is one bullet really enough?"

 

Thailand's tightening came just before the Federal Reserve's last policy decision of 2018. It is widely expected to hike U.S. rates a fourth time, though recent equity markets' tumbles make some analysts believe the Fed will signal a pause in 2019.

 

Analysts expect Thai growth prospects to weaken in 2019, with inflation likely slipping back below the central bank's 1-4 percent target range.

 

Political uncertainties may increase, with as general election - the first since a May 2014 military coup - scheduled for Feb. 24.

 

After a weaker-than-expected third quarter, the central bank on Wednesday cut its 2018 growth forecast to 4.2 percent from 4.4 percent seen three months ago. It now sees exports up 7.0 percent, rather than 9 percent.

 

For 2019, it also lowered GDP growth estimate to 4.0 percent from 4.2 percent, with exports up 3.8 percent instead of 4.3 percent.

 

The economy, which last year had its best growth in five years at 3.9 percent, remains heavily reliant on external demand. Exports have slowed while tourism has been hit by reduced numbers of Chinese visitors after a July boat accident.

 

Domestic demand has been crimped by high household debt and excess industrial capacity.

 

The baht <THB=TH> has depreciated about 0.3 percent this year, making it the best-performing emerging Asian currency.

 

(Additional reporting by Satawasin Staporncharnchai; Editing by Richard Borsuk)

 

-- © Copyright Reuters 2018-12-19

[Pib]

Looking at the XE.com USD-THB exchange rate for the last 24 hours as of 8pm Thai time, the interest rate increase didn't seem to have much of any impact...maybe only around 0.05 baht.  Must have been baked in already.

 

[Srikcir]

19 hours ago, webfact said:

excess industrial capacity

Yet, Thailand has almost (according to government reporting) zero unemployment while the Prayut government is rushing to develop the Eastern Economic Corridor that currently will need an immediate 30,000 skilled workers that doesn't exist!

That's financial BRAKE FAILURE that BOT is responsible to assure.

[KhunBENQ]

15 hours ago, Pib said:

Must have been baked in already.

Seems the same for the Euro.

After the bad (<37) I expected the worst (<36), but no.

Currency rate 37.3.

Still miserable.

 

[natway09]

The brakes need to be applied to easy borrowing to restrict those unable to repay clearly "getting approved loans" knowing that they will never be able to keep up with repayments.

The average household debt is way out of hand