Thailand Holds Rate But Eyes Risks From High Credit, Debt
Thailand’s central bank kept its policy rate steady at 2.75 percent, as expected, but cautioned that it was keeping a close eye of risks that could develop from persistently high credit growth, rising household debt and volatile capital flows.
The Bank of Thailand (BOT) said last year’s accommodative policy – the BOT cut rates by 50 basis points in 2012 - had “significantly shored up private sector confidence, supported post-flood recovery, and helped cushion the economy from the global economic headwinds.”
Although the global economy continued to recover, led by the US and China, the central bank said it was still appropriate to maintain a policy stance that sustained growth momentum, given the remaining uncertainties in the global economy and that inflation was forecast to be within target.
“The MPC will, however, continue to closely monitor financial stability risks that may arise from persistently high credit growth, rising household debt, and volatile capital flows,” the BOT said in a slightly hawkish statement after a meeting of its Monetary Policy Committee.
The BOT said the recent political agreement in the United States to avert the fiscal cliff had helped bolster global financial market sentiment but the euro zone and Japanese economies remained weak and a “resolution of their structural problems would likely take time.”
But the economic performance of most Asian economies had turned more positive, helped by strong domestic demand and “modestly improving exports.”
The BOT’s slightly hawkish tone was a bit firmer that its surprisingly upbeat statement in November when it said downside risks to economic growth were starting to subside and it expected exports to recover in the first half of this year.
In December the BOT raised its forecasts for growth in 2012 and 2013 and the bank said this growth revision was based on its expectation that the Thai economy likely expanded more than previously expected in the the fourth quarter.
In the third quarter, Thailand’s Gross Domestic Product rose by 1.2 percent from second for annual growth of 3.0 percent, down from 4.4 percent in the second but well above the first quarter’s 0.4 percent as the country slowly began to recover from flooding in 2011.
Growth continues to be driven by private consumption and investment that is supported by “consumer and business confidence, favourable household income, full employment as well as accommodative monetary conditions with continued high rates of credit growth,” the bank said.
It added that the export sector showed incipient signs of a broad-based recovery while the service sector and tourism expanded robustly.
The BOT said inflationary pressures remained stable but “the impact of the second-round minimum wage increase warranted monitoring.”
Thailand’s headline inflation rate jumped to a 2012-high of 3.6 percent in December from 2.7 percent in November but core inflation, which excludes fresh food and energy prices, eased to 1.78 percent from 1.85 percent.
The BOT targets core inflation of 0.5 to 3.0 percent.
In December the central bank raised its 2012 GDP forecast to 5.8 percent from a previous 5.7 percent and its 2013 forecast to 4.7 percent from 4.6 percent.
Economists had widely expected the BOT to hold rates steady this month but are starting to pencil in rate rises in the second half of this year if inflation starts to rise.