InfoQuest (March 20, 2019) -- The current easy monetary policy is favorable for economic growth and is in line with inflation target. By also considering the high uncertainty of global economy and domestic factors, the Monetary Policy Committee (MPC) decided to maintain policy interest rate at 1.75%.
"At the meeting, the MPC decided to maintain the current policy interest rate, to wait for more precise assessment of various factors," said Mr. Thitnant Mullika, secretary of the MPC.
In decision-making, the MPC believed that the economic potential of Thailand will be fully unleashed, and despite the decrease of foreign demands, domestic demands will continue to expand. While inflation rate may be close to expectation, core inflation rate may be slightly lower than expectation. The whole financial environment is stable, which is conducive to economic growth. Yet sustained efforts still should be made to monitor risk factors that affect the stability of financial system.
Despite a somewhat less desirable economy, the Thai economy as a whole will fully unleash its potential due to the driving effect of domestic demands. With the improvement and expansion of household income in agriculture and non-agriculture sectors, private consumption may increase sustainably, which should be partly attributed to the support of government policies. Yet a high household debt ratio will bring pressure.
With the transfer of production basis to Thailand, and thanks to the joint investment projects of government and private investors in infrastructure, and confidence in quality investment, we may be able to see a sustained increase of private investment. Due to the slowdown of world economy, the stagnation of electronics market, and influence of China-U.S. trade wars, the growth of commodity exports was lower than expected; however, the tourism sector saw a growth. The increase of the government budget, no matter in consumption or investment is lower than expected. It is partly due to some SOEs investment projects were postponed.
"The Monetary Policy Committee (MPC) of Thailand will monitor risks in international market, including trade wars between China and the U.S., China's economic growth, and influence that economy in major industrial countries has on domestic market. Meanwhile, we will pay attention to investment in important infrastructure and private investment, which will exert influence on economic growth for next period," secretary of the Monetary Policy Committee (MPC) said.
Annual average inflation rate was close to the number expected. Energy price climbed and price of fresh food saw worse soaring due to excessive supply and drought, which can make up for the low core inflation rate. The MPC attributed the slowdown of inflation rate to structural changes, like business expansion of e-commerce, fiercer price competition, and technologies reducing production costs.
Thitnantit said that in the past, financial environment as a whole is favorable for economic growth. The liquidity in finance is high and the effective interest rate is low. Private sectors can keep financing, and commercial and consumption loans continue to increase. The exchange rate of baht against U.S. dollar has seen a decline since last meeting, keeping the same as regional currency. In the long run, due to uncertainty home and abroad, the exchange rate of baht will continue to fluctuate. Thus we should pay close attention to exchange rate and its impact on economy.
Although the financial sector as a whole remains stable, we still need to monitor potential risks which are likely to affect the stability in financial sector in the future. The MPC believe the measures and the hike in policy interest rate can help lower financial vulnerability caused by search for yield when interest rate is low and avoid underpricing of risks.
We still need to pay attention to the development of mortgage market, the adjustment in real estate sector, the asset growth in credit cooperatives, factors which can increase household debts and large enterprises which is likely to undergo underpricing of risks. Therefore, to lower risks in financial sector for the next stage, we still need use various regulation instruments, including suitable policy interest rate, microprudential and macroprudential regulations.
"Looking ahead, Thai economy is likely to see a sustainable growth. Although external demand is shrinking, the MPC believes easy monetary policy at present still works. The MPC will monitor economic growth, inflation rate, financial stability and risk factors, so as to implement appropriate monetary policy," secretary of the MPC said.
Source: InfoQuest, by Tanit Tongnok / Kasamarporn / Ratchada, InfoQuest
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