Bank of Thailand likely to keep rates unchanged through 2016

Bank of Thailand's MPC members decided to hold the one-day repo rate at 1.5%. The central bank has cut two times in this year before June which came as surprises to the market in March and April, and now it is on hold.

The country's economic recovery was very slow after the central bank rose 2.9% yoy in H1 2015. BOT's 2015 GDP target was also revised down recently from 3.0% to 2.7% due to China and Asia slow down and slower public investment.

The policy decision was unaninomoous and the guidance remains dovish, the central bank highlighted that fiscal policy is a key pillar of support for the economy, and will help drive economic growth in the coming quarters. 

They noted the slower recovery of the country's economy. The tourism and fiscal support are viewed as key drivers of domestic activity. BOT said that it will maintain a sufficiently accomodative stance and the impact of fiscal measures would be monitored to gauge the need for further policy stimulus.

With the week growth environment and low inflation, BOT might keep monetary conditions accomodative. In a recent speech to the press, the new BoT governor Veerathai Santiprabob indicated that the growth outlook is likely to remain challenging for the next 2-3 years, and that the central bank will need to balance growth needs with financial stability risks, if interest rates remain low for a long time. 

"The BoT is likely to keep rates unchanged through 2016, with a bias for a weaker exchange rate. But if the THB were to appreciate materially, the possibility of rate cuts cannot be ruled out aimed at a weakening the currency", says Barclays.