The Bank of Thailand’s Monetary Policy Committee (MPC) unanimously decided to keep the policy rate on hold at 1.5 percent, at par with projections. According to the central bank’s post meeting statement, the Committee expects the Thai economy to continue recovering at a gradual rate despite facing larger downside risks from increased uncertainties in the global economy.

In the meantime, the central bank projects inflation to come back to the target band slightly later than assessed earlier because of weaker than anticipated energy prices.

The MPC stated that “monetary conditions remained accommodative and conducive to the economic recovery”. This was seen in low interest rates and a continued growth in total corporate financing and household credits. However, certain business sectors face restrictions in obtaining credits.

Nonetheless, the Thai baht gained against certain major currencies in the recent period that might not be advantageous to the current economic recovery. Moreover, financial stability risks from continued low interest rate scenario continued to ask for close monitoring, according to the MPC statement.

Given that the Thai economy might continue to be challenged by additional uncertainties in the future, especially the weaker global economic recovery, and uncertainties in the monetary policy directions of major developed economies, the MPC saw the need to keep policy space.

According to the MPC statement, the monetary policy should continue to be accommodative in future, and should be prepared to use an appropriate mix of available policy tools in a bid to guarantee that monetary policy conditions are conducive to the economic recovery, while safeguarding financial stability.

According to an ANZ research report, the Bank of Thailand is expected to stand pat for the remainder of 2016. Firstly, major commercial banks have cut their lending rates in the second quarter of 2016, successfully delivering an easing without the central bank having to lower rates. Secondly, government spending has been sped up and would continue to be unaffected by the outcome of the referendum in August, stated ANZ.

This year, the economic growth has been largely underpinned by fiscal spending and this is expected to continue in the second half of 2016.

And lastly, the Bank of Thailand is less tilted towards lower rates as a reaction to a stronger baht. The central bank would prefer to offset the renewed strength in the currency via direct foreign exchange intervention and take measures to urge capital outflows. An increase in the country’s current account surplus is partially responsible for THB strength in 2016, stated ANZ.

“We expect the surplus to narrow, which alongside the BoT’s preference for a weaker currency and our expectation that the US Federal Reserve will hike rates at the end of this year, will lead to a lower baht. We maintain our USD/THB year-end forecast at 36.8,” added ANZ.