InfoQuest, (July 10, 2019) -- The central bank revealed No. 4/2562 meeting minutes on June 26, 2019 by the Monetary Policy Committee (MPC). According to the minutes, the MPC forecast that Thailand's economy might grow at a slower pace than previously expected, private consumption continued to rise and the overall inflation rate was close to the lowest inflation target, as the exports saw a decline.
At present, the moderately easy monetary policy that stimulates economic growth is being implemented. The MPC will continue to track and monitor potential risks undermining the stability of the financial system, especially the increase in high household debt and non-performing loans (NPLs). Considering the high uncertainty existing at home and abroad in the future, the MPC kept the policy interest rate unchanged at this meeting.
The MPC took the following factors into account when introducing this monetary policy.
Thailand's economic growth is expected to be lower than previously estimated as product and service exports experienced a decline. Due to the slowdown in trade partners' economy and in global trade amid growing trade barriers, the country's exports were not as good as expected. Thus the economy is expected to grow by 3.3 percent in 2019 and 3.7 percent in 2020, lower than 3.8 percent and 3.9 percent, the figures predicted earlier. And tourism in Thailand was also slowing down due to a drop in Chinese tourists. With regard to domestic demands, private consumption continued to grow. However, high household debt and income and employment decrease in manufacturing exports may weigh on it.
Growth in private investment is likely to slow this year, but the relocation of production bases to Thailand and infrastructure projects jointly funded by the government and private sectors will help fuel investment in the next phase. And government spending tends to be lower than the forecast figure. This is mainly due to that the 2020 budget spending act will be postponed.
The MPC also worries that the great uncertainties Thai economy faces in overseas market may hinder the domestic growth later.
In particular, trade barriers among countries are likely to become increasingly severe and lasting, leading to a slowdown in global trade more serious than expected and hitting Thai exports.
And growth in major industrial countries and China could be slower than expected, thus affecting its domestic demand. Moreover, domestic uncertainties will also have an impact on economic growth. For example, as it takes a long time to form a new government, the continuity of budget outlays can be interrupted. Other factors include the policies introduced by the new government such as minimum wage policy and various welfare policies.
Some risks in the financial system may lead to instability and vulnerability of the financial system in the future.
For example, household debt was high and kept growing. Notably, the proportion of household debt in GDP was climbing as a result of car loans and housing loans. And the proportion of NPLs for car purchase showed an increasing trend, especially new NPLs. Beyond that, amid low interest rates, the efforts to seek higher returns can cause risk assessment to be less serious than the current case.Real estate sector is also exposed to risks. Some areas are haunted by oversupply. Meanwhile, as the global economy slows, demand from overseas market is falling.
The MPC claimed that the financial stabilization measures taken in the previous period have helped make the financial system less vulnerable, but it still calls for various tools to track and prevent risks undermining the stability of financial system. Such tools include appropriate policy rate, and measures to monitor financial institutions and maintain financial stability. Besides, the MPC insisted that efforts should be made to follow up the financial stabilization measures implemented and timely formulate proper supplementary measures, so as to maintain stability in the financial system and guard against systemic risks in a more efficient manner.
The current annual inflation rate remains relatively stable, close to the expected figure and the lowest inflation target, but there is still uncertainty against the inflation rate for some time to come due to the fluctuation of oil price, the impact of dry weather, and the possible increase of the minimum wage this year. As a result, the MPC believed a moderately easy monetary policy now would ensure that overall inflation is in line with the inflation target.
In addition, the MPC discussed monetary policy guidelines. Thai economy may be growing at a pace that nearly all potential is tapped in the next phase, despite a likely slowdown at the moment due to lower overseas demand. According to the MPC, there are still risks affecting the stability of the financial system that need to be continuously tracked and monitored in the future, and the growth still faces great uncertainties at home and abroad, and the current appropriately easy monetary policy is still applicable.
Therefore, the MPC will continue to follow economic growth, inflation rate, financial system stability and exchange rate. At the same time, it will continue to monitor various risks, particularly international trade barriers, aiming to implement appropriate monetary policy in the next phase.
Source: InfoQuest, by Kasamarporn Kittisamphan/ Rachada, translated by Xinhua Silk Road
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