BANGKOK: Uncertainties in export markets and earnings from tourism were major concerns for Thai policymakers when they decided to hold interest rates steady earlier this month, minutes of the central bank’s meeting showed on Wednesday. At that Aug.3 meeting, the Bank of Thailand (BOT)’s policy committee unanimously voted to keep the one-day repurchase rate at 1.50%, just 25 basis points above the record low seen during the global financial crisis. The last rate change was a quarter point cut in April 2015.
The minutes showed policy makers were concerned about “considerable” external uncertainties, particularly the fragile global economic recovery and uncertainties in the monetary policy directions of major advanced economies. “They could significantly hinder the recovery of Thailand’s trading partner economies and consequently the Thai economy in the period ahead,” the minutes said.
While the committee expected the economy to grow at a rate close to the previous assessment, increased global uncertainty, could make tourism, a main growth driver, softer and exports contract further, the minutes said. The BOT has forecast economic growth of 3.1% this year, with exports falling 2.5%. The economy expanded 2.8% last year.
In April-June, Southeast Asia’s second-largest economy grew more than expected, expanding 0.8% on-quarter and 3.5% on-year due to government spending and tourism. Tourism has been a rare bright spot, and there will be some worries about an industry that accounts for 10% of GDP after Friday’s wave of bombings in resort towns.
The committee also expected capital flow and exchange rate volatility to persist in the period ahead and that the recent appreciation of the baht might not be beneficial to the ongoing economic recovery, the minutes said. The baht was at 34.6 per dollar on Wednesday, hovering around its highest in nearly 13 months. The minutes said the committee would continue to monitor risks arising from a prolonged low interest rate environment, “particularly the search for yield in unrated bonds that could lead to underpricing of risks.” The committee next reviews policy on Sept. 14. Most economists expect no policy change for now.
