Bank of Thailand keeps benchmark rate unchanged, likely to remain on hold through 2016

As expected, Bank of Thailand kept its benchmark rate on hold at 1.5 percent under a unanimous vote. The Thai central bank last cut its policy rate in April 2015, when the prospects of economic growth had fallen.

Private consumption growth has been slowing in the country. The temporary support in household spending from promotional offers and launches of new products is likely to diminish in the months ahead, stated ANZ in a research report. Growth of private investment continues to be sluggish.

Year to date indicators for private investment are barely drawing 1 percent year-on-year average growth in spite of reductions in lending rates. Since the Bank of Thailand surprisingly lowered its benchmark rate in April 2015, the minimum lending rate provided by commercial banks have declined by over 100 basis points reaching 5.5 percent in August.

Meanwhile, Thai demand-pull inflationary pressure is weak. The secular deceleration in growth has kept the core and headline inflation subdued. Inflation is likely to reach 0.6 percent year-on-year in 2016, much below the central bank’s target range of 1 percent to 4 percent, added ANZ. There are further downside risks to the inflation projections.

The Bank of Thailand is likely to remain on hold through the remainder of 2016. Private investment has failed to pick-up in spite of the constant drop in commercial bank rates and this is expected to keep the focus of the central bank off its key interest rate, according to ANZ.

Thailand’s current account surplus is broadening due to the constant shrinking of imports along with robust tourist receipts. This is keeping the Thai baht strong, which the central bank has been addressing through active intervention.

The current account surplus is widening on the back of the persistent contraction of imports coupled with strong tourist receipts. This has been keeping the THB strong, which the BoT has been addressing via active intervention.