Policy rate put on hold at 1.5%

The Monetary Policy Committee (MPC) yesterday (Aug 16) decided to put the policy rate on hold, at 1.5% to bolster economic expansion.

Decision of the MPC came after the country's economic growth outlook brightened further on the back of the rise in exports, and service sector while overall financial conditions continued to accommodate the economic expansion.

However, risks remain, particularly the search-for-yield behaviour amid the low interest rate environment, according to the MPC secretary Jaturong Jantarangs, also deputy governor of the Bank of Thailand.

He said economic growth gained further traction on stronger growth in exports across various product categories and on continued expansion in tourism and higher agricultural output.

Meanwhile, the country's domestic demand continued to increase gradually, while inflationary pressure also remained low.

Headline inflation gradually rose at a slightly slower pace than expected due mainly to supply-side factors, especially fresh food prices, which declined due to this year's higher agricultural output following proper weather conditions, he said.

He said investors' confidence on the US dollar declined while Thailand's overall financial conditions remained conducive to economic growth with ample liquidity in the financial system.

This helped to continue to strengthen the Thai baht.

But given stronger appreciation of the baht against its regional peers in some periods, business adjustments could be affected and the baht needs close monitoring, he said.

There also needs to monitor the debt repayment by SMEs although the non-profit performance loan figures show a decline.

The next MPC meeting would look into impact from the massive flooding in the Northeast region in July.

Initial assessment of flood damage was put at 7.5 billion baht which is minimal and not a concern, as it is mostly affected the farming sector, he added.

CIMB senior executive vice president Amornthep Jawala said the MPC's decision was what the money market has anticipated.

He said the economic recovery was mainly from external factors. But he said that as long domestic demand remains low, the longer period the policy rate will be put on hold.

Source: Thai Public Broadcasting Service (Thai PBS)