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Bank of Thailand Rebuffs Finance Ministry by Keeping Rate on Hold

The Bank of Thailand is holding its ground and has argued that a rate cut may increase financial stability risks.

BANGKOK – Thailand’s central bank held its benchmark interest rate near a record low, spurning the government’s call for policy easing as it painted a brighter outlook for the economy.

Thailand’s Finance Ministry has been stepping up pressure on the central bank to cut interest rates as the currency surges and as inflation remains subdued. The International Monetary Fund supports the argument for easing, saying it will help steer low inflation back to the target range.

Economic growth is lagging peers in Southeast Asia and the export-reliant nation is at risk from the baht which has gained more than 7 percent against the dollar this year — the strongest performance in Asia.

Key Points

The one-day bond repurchase rate was left at 1.5 percent, with monetary policy committee members voting unanimously in favor, the Bank of Thailand said in Bangkok on Wednesday
20 of 21 economists surveyed by Bloomberg predicted the decision, with one forecasting a cut
The central bank raised economic growth forecasts for 2017 and 2018, and cut inflation projections.

The Bank of Thailand is holding its ground and has argued that a rate cut may increase financial stability risks. The central bank has instead intervened in the currency market and curbed the supply of short-term bonds to restrain the baht.

The Bank of Thailand is holding its ground and has argued that a rate cut may increase financial stability risks. The central bank has instead intervened in the currency market and curbed the supply of short-term bonds to restrain the baht.

Economist Takeaway

“The Bank of Thailand today resisted pressure from the government to loosen monetary policy,” said Gareth Leather, senior Asia economist at Capital Economics Ltd. in London. He predicted that rates may remain on hold until 2018, citing risks to the economy.

“High levels of household debt are likely to drag on consumer spending, while investment will be held back by the worsening business environment and continued political uncertainty,” he said.

Markets

The baht dropped 0.3 percent to 33.280 per dollar as of 2:45 p.m. in Bangkok
The benchmark stock index was little changed, paring earlier gains of as much as 0.3 percent.

By Natnicha Chuwiruch and Suttinee Yuvejwattana
Bloomberg

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