Bank of Thailand keeps policy rate on hold, lowers growth forecast

The Bank of Thailand stood pat during its meeting today. The central bank, in a unanimous decision, kept the policy rate at 1.75 percent. However, the BoT lowered its 2019 growth forecast to 3.3 percent from 3.8 percent, mainly on the back of lower exports, and its 2020 forecast to 3.7 percent from 3.9 percent.

Lowering of the forecast was not unexpected, given the recent run of weak data, noted ANZ in a research report. GDP growth decelerated in the first quarter and available data for the second quarter continue to be disappointing. Manufacturing production data, which was released yesterday indicated that output dropped 4 percent year-on-year in May, the softest since August 2014, while April figures were downwardly revised. Overall, manufacturing production fell 1.4 percent year-on-year in the first two months of the second quarter, as compared to a 1.2 percent contraction in the first quarter.

Meanwhile, the Bank of Thailand cut its 2019 core inflation forecast to 0.7 percent and its 2020 headline inflation forecast to 1 percent. It maintained its 2019 headline CPI forecast at 1 percent and 2020 core CPI forecast at 0.9 percent. The combination of decelerating growth, soft price pressures, and a solid THB has triggered calls for a more accommodative monetary policy stance.

However, the central bank seems content to adopt a wait-and-see stance. While it acknowledged concerns about growth and currency strength, it repeated that financial stability risks remain a concern.

“In our view, it would probably take a sharper deterioration in the growth outlook (ie 2019 growth <3 percent) before the BoT pulls the trigger”, added ANZ.