The Bank of Thailand (BOT) cut its policy rate by a further 25 basis points to 1.50 percent following a similar cut in March for a total cut of 50 points this year. Most economists had expected the BOT to maintain its rate today.
Last month the BOT said it would pursue "appropriate policy" to sustain the ongoing economic recovery while today it said that it would conduct policy to ensure that monetary conditions "are sufficiently accommodative for a continued recovery" and it was "ready to utilize an appropriate mix of available policy tools."
Two members of the seven-member policy committee voted to maintain the policy rate at 1.75 percent, arguing increased fiscal stimulus should help economic activity and the space for additional easing was limited. In March three members had voted to maintain rates.
The BOT said it expects the Thai economy to recover at a slower pace than expected last month as higher public investment and rising tourism are not enough to offset weaker exports and private consumption in the first quarter of the year.
Exports from Thailand are an increased risk of declining from the slowdown in China and a shift in global and trading patterns as major trading partners rely less on imports. In addition, exports are also being hit by the recent appreciation in the Thai baht, the BOT said.
Last week Don Nakornthab, director of BOT's macroeconomic policy office, said Thailand's economy likely contracted in the first quarter from the fourth quarter but should expand in the second quarter due to improved exports and government investments. First quarter data will be released on May 18.
Last month the BOT cut its 2015 growth forecast to 3.8 percent from a previous 4.0 percent projection and the forecast for headline inflation to 0.2 percent from 1.2 percent. The Thai economy, which expanded by only 0.7 percent last year, is forecast to expand by 3.9 percent in 2016.
Thailand's Gross Domestic Product expanded by 1.7 percent in the fourth quarter of 2014 from the third quarter for annual growth of 2.3 percent. An official of the national planning agency has estimated first quartern annual growth around 3 percent.
Thailand's consumer price inflation was minus 0.57 percent in March, the third consecutive month of deflation, well below the BOT's target of plus 2.5 percent, plus/minus 1.5 percentage points.
The Bank of Thailand issued the following statement by its monetary policy committee:
"The committee voted 5 to 2 to reduce the policy rate by 0.25 percentage point from 1.75 to 1.50 percent per annum with immediate effect. Two members voted to maintain the policy rate at 1.75 percent per annum.
Key considerations for policy deliberation are as follows.
The Thai economy is projected to recover at a slower pace than assessed in the previous meeting. The pickup in public investment and positive trend in tourism should help shore up the economy, but could not fully offset the weaker-than-expected exports of goods and private consumption in the first quarter of 2015. Furthermore, looking ahead, exports of goods are subject to higher downside risks from the slowdown in China, shifting global and regional trade structure as Thailand’s major trading partners rely less on imports, and pressure from recent Thai baht appreciation. The contraction in exports could weigh down private investment and consumption through reduced purchasing power and weaker private confidence.
Inflationary pressure continues to decline broadly in line with softer-than-expected domestic demand. Meanwhile, cost of production, particularly oil price, remains low. This development increases the risks of prolonged negative headline inflation and inflation expectation trending downward.
In deliberating monetary policy, most members deemed that monetary policy should be eased further in order to add more support to the economic recovery amid higher downside risks, as well as to anchor inflation expectations at an appropriate level. Two members, however, voted to keep the policy rate unchanged, judging that previous monetary policy actions have contributed to continuing accommodative monetary conditions while the policy space for additional easing is limited. In their view, a recent pickup in fiscal stimulus should help buoy the economy to a certain degree; therefore, the policy rate should be maintained, awaiting clearer assessment of the impact of the policy mix on the economy and financial stability.
Going forward, the committee will conduct monetary policy to ensure that monetary conditions are sufficiently accommodative for a continued recovery. The committee will monitor Thailand’s economic and financial developments, and stand ready to utilize an appropriate mix of available policy tools."
"The committee voted 5 to 2 to reduce the policy rate by 0.25 percentage point from 1.75 to 1.50 percent per annum with immediate effect. Two members voted to maintain the policy rate at 1.75 percent per annum.
Key considerations for policy deliberation are as follows.
The Thai economy is projected to recover at a slower pace than assessed in the previous meeting. The pickup in public investment and positive trend in tourism should help shore up the economy, but could not fully offset the weaker-than-expected exports of goods and private consumption in the first quarter of 2015. Furthermore, looking ahead, exports of goods are subject to higher downside risks from the slowdown in China, shifting global and regional trade structure as Thailand’s major trading partners rely less on imports, and pressure from recent Thai baht appreciation. The contraction in exports could weigh down private investment and consumption through reduced purchasing power and weaker private confidence.
Inflationary pressure continues to decline broadly in line with softer-than-expected domestic demand. Meanwhile, cost of production, particularly oil price, remains low. This development increases the risks of prolonged negative headline inflation and inflation expectation trending downward.
In deliberating monetary policy, most members deemed that monetary policy should be eased further in order to add more support to the economic recovery amid higher downside risks, as well as to anchor inflation expectations at an appropriate level. Two members, however, voted to keep the policy rate unchanged, judging that previous monetary policy actions have contributed to continuing accommodative monetary conditions while the policy space for additional easing is limited. In their view, a recent pickup in fiscal stimulus should help buoy the economy to a certain degree; therefore, the policy rate should be maintained, awaiting clearer assessment of the impact of the policy mix on the economy and financial stability.
Going forward, the committee will conduct monetary policy to ensure that monetary conditions are sufficiently accommodative for a continued recovery. The committee will monitor Thailand’s economic and financial developments, and stand ready to utilize an appropriate mix of available policy tools."
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