Thailand: Benchmark interest rate expected to stay on hold

ECONOMISTS expect a majority vote in favour of keeping the policy rate on hold when the Bank of Thailand’s Monetary Policy Committee (MPC) meets on June 26.

Pipat Luengnaruemitchai, assistant managing director at Phatra Securities Plc, said the MPC was likely to maintain the rate at 1.75 per cent, but might consider a reduction in the future to counter risks such as economic downturn.

Another factor that could prompt a rate cut is an expectation that the US Federal Reserve might cut its benchmark rate three times this year and this could add to pressure to the Thai policy rate.

Pipat believes that the MPC would not rush to trim the rate soon unless in the future the country faces a further decline in economic activity and strong appreciation of the baht. If the MPC were to cut the benchmark rate, it would likely act late this year.

Narit Sathapholdeja, head of TMB Analytics, is among those who believe the MPC will keep the rate on hold at the coming meeting. The committee might leave the rate on hold for a long period before considering whether to make a cut in the future if economic growth drops below 3 per cent. 

 “Currently, the country’s real interest rate is at 0.67 per cent and that suits the country’s economy at this time. However, the MPC will revise the country’s interest rate – for a rise or fall – depending on the state of the economy at the time. But for this meeting, we believed that the MPC will maintain the interest rate,” he said.

Somprawin Manprasert, head of Krungsri Research, said that the MPC is expected to keep rate unchanged throughout the year, even though the Fed and the European Central Bank have sent signals of possible rate cuts in the future.

Somprawin said that a rate cut would give only a slight boost to the economy as the current economic problems are not due to high interest rates but rather the difficulties that face people in getting loans. To solve the problem, the government should help small and medium-sized enterprises gain easier access to loans.

Source: http://www.nationmultimedia.com/detail/Economy/30371725