Bank of Thailand keeps policy rate unchanged, expects inflation to reach target rate in Q2 2018

The Thai central bank decided to stand pat during its meeting today. The Bank of Thailand kept its policy rate on hold at 1.50 percent. While the Thai economic growth continues to gather pace, inflationary pressures continue to be subdued.

In spite of the strength in exports and tourism sector, the Thai economic growth has not been sufficiently widespread. Private consumption is rebounding at a gradual rate, thanks to subdued income growth and a high level of household indebtedness. Even if some demand enhancing measures are expected, its effect on consumption and inflation is expected to be felt only with a significant lag, noted ANZ in a research report.

Similarly, recovery in investment has been modest. Even if public infrastructure is being stepped up, it has not as yet crowded in private investment. Furthermore, even in the tradables sector, capacity utilization levels have just recently converged with their long term average suggesting that it would be some time before manufacturing investment responds more significantly.

In the midst of these rebounds in the real economy, inflation continues to be subdued with even the restricted rises being driven by energy prices. The Bank of Thailand expects headline inflation to return to the target rate in the second quarter.

“Overall, we believe that the BoT will be in no hurry to hike its policy rate”, added ANZ.

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