Thai maintains policy rate at historically low level, as expected

BANGKOK, Feb 9 (Reuters) – The following is a statement from the Bank of Thailand after it left its key interest rate steady at a record low 0.50% on Wednesday, as forecast by the 23 economists in a Reuters poll. Read more

Piti Disyatat, secretary of the Monetary Policy Committee (MPC), announced the outcome of the February 9 meeting as follows.

The Committee voted unanimously to maintain the key rate at 0.50%.

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The Committee felt that the Thai economy would continue to recover, as the Omicron variant would put limited pressure on the public health system. The downside risk to growth has improved.

However, it remained necessary to closely monitor the evolution of the pandemic in the future.

Upside inflationary risks have increased and headline inflation would pick up in early 2022, due to higher energy and food commodity prices.

Although demand-side inflationary pressures remained subdued, alongside the gradual recovery in household incomes, there remained a need to monitor global energy prices and the widespread pass-through of costs to goods and services.

The Committee felt that maintaining an accommodative monetary policy would help support economic growth and therefore voted in favor of maintaining the key rate.

In addition, ongoing financial and fiscal measures, aimed at rebuilding and improving potential growth, would play an important role in supporting the strong labor market recovery as well as business and household incomes.

The Committee estimated that in 2021, the Thai economy will grow faster than expected and that the recovery will continue in 2022 thanks to an increase in merchandise exports, as well as a higher number of foreign tourist arrivals. due to a faster than expected easing of travel restrictions. .

However, the recovery would remain fragile and uneven across sectors, particularly in tourism which was below pre-pandemic levels. The Committee will monitor labor market developments as well as the impact of the rising cost of living as incomes have not fully recovered.

Headline inflation in 2022 would be higher than previously estimated and could exceed the target range at the start of the year.

This would be due to price increases in certain sectors, notably energy and raw food products.

At the same time, upside risks to inflation have increased. In particular, the pass-through of producer costs to consumer prices could increase if energy and food commodity prices remain high for longer than expected, or if supply constraint issues spread further afield. other goods.

Nevertheless, the average inflation rate for the whole of 2022 and medium-term inflation expectations would remain within the target range. In addition, there had been no indication of broad-based increases in the prices of goods and services, while demand-side inflationary pressures remained subdued.

In the period ahead, it remains necessary to closely monitor developments in global energy prices and domestic prices for goods and services, as well as the possibility of heightened wage pressures.

Overall liquidity remained abundant, but the distribution of liquidity still varied across economic sectors. Yields on long-term Thai government bonds rose mostly in line with US Treasury yields.

Regarding exchange rates, the baht against the US dollar continued to show volatile movements due to a faster normalization of monetary policy in advanced economies and the easing of national epidemic containment measures. .

The Committee would closely monitor developments in global and national financial markets and continue to accelerate the new exchange ecosystem, in particular by helping SMEs to protect themselves against the risks associated with exchange rate volatility.

The Committee believed that government action and policy coordination among government agencies would be essential to support economic recovery.

Public health measures must strike a balance between containing the epidemic and supporting the resumption of economic activities.

Fiscal measures should support the economic recovery in a targeted way, focusing on revenue generation and accelerating measures to rebuild and strengthen potential growth.

Monetary policy should help maintain accommodative financial conditions overall. Financial and credit measures have helped to distribute cash to affected groups in a targeted manner and to reduce the debt burden.

These measures included the Special Lending Facility, the Asset Warehousing Scheme and other measures taken by Specialized Financial Institutions (SFIs).

In addition, financial institutions should accelerate debt consolidation and restructuring in a sustainable manner through the program launched on September 3, 2021 to have broader impacts and be consistent with borrowers’ long-term debt service.

As part of monetary policy aimed at maintaining price stability, supporting sustainable and full-potential economic growth, and safeguarding financial stability, the Committee continued to place emphasis on supporting economic recovery.

The Committee will closely monitor key factors affecting the economic outlook, namely the evolution of the COVID-19 outbreak, global energy prices, the pass-through of higher costs, as well as the adequacy of fiscal measures. , financial and credit. The Committee would stand ready to use the appropriate monetary policy tools if necessary.

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Reporting by Orathai Sriring Editing by Ed Davies

Our standards: The Thomson Reuters Trust Principles.

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