BANGKOK: The Bank of Thailand’s (BoT) policy decision is due on Wednesday and market is expecting it to keep the policy rate unchanged at 1.50%. Despite monetary policy normalisation in developed economies, the BoT is inclined to maintain the status quo to avoid further THB appreciation that could jeopardise the growth trajectory.
The THB has appreciated by about 4.2% against the USD in the year-to-date on capital inflows and a rate hike from the BoT is likely to further intensify inflows. While key externally oriented sectors (such as tourism) have been resilient in spite of the currency’s strengthening, receipts have actually diminished due to THB appreciation. The February customs trade data out last week showed that exports declined by 0.6% y/y in THB terms despite rising by 10.3% y/y in USD terms.
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The decline in exports in THB terms underscores the impact that THB strengthening is having on exporters’ incomes as well as competitiveness and could jeopardise export performance, a key growth driver. The central bank and commerce ministry will be reviewing ways to help exporters in addition to encouraging currency risk management, finding new markets and using regional currencies to help address the issue. However, the authorities are not too concerned about export competitiveness as export volumes remain robust.
Meanwhile, recent comments from BoT officials also suggest that the central bank would prefer to maintain the status quo for the time being. BoT governor said earlier this month that although economic growth has become more broad-based, monetary policy needs to stay accommodative as there is an absence of inflationary pressures (recall that CPI inflation eased to 0.4% y/y in February from 0.7% y/y in January). The governor also noted that while the central bank cannot resist THB appreciation, it can limit currency volatility, suggesting that the BoT will continue to intervene in the FX market should currency volatility increase or THB moves stray from that of other currencies in the region.
