Views Article – Sharenet Wealth

Asia, Forex

Thai monetary policy should be accommodative for some time – c.bank

* Sees headline inflation returning to target in H2 2021

* Sees inflation at 0.8% this year vs target of 1%-3%

* Policy interest rate now at record low of 1.25% (Adds detail, background)

By Orathai Sriring

BANGKOK, Jan 22 (Reuters) – Thailand’s central bank said monetary policy should remain accommodative for some time to support economic growth and help inflation return to target.

The Monetary Policy Committee (MPC) expects headline inflation – projected at 0.8% this year – to get back to the 1%-3% target range in the second half of 2021, the central bank said in an open letter to the finance minister dated Jan. 9.

The breach of the target would be driven by supply-side pressures that would remain low, since a gradual global economic recovery continues to weigh on global energy prices, it said.

“Looking ahead, the MPC views accommodative monetary policy should be maintained for some time so that overall financial conditions remain conducive to economic growth,” it said.

That “will facilitate the return of headline inflation to target, and at the same time takes into consideration financial stability risks,” the central bank said.

The MPC stands ready to use various tools, ranging from the policy interest rate to microprudential and macroprudential measures, to achieve the monetary policy objectives most effectively, it added.

The central bank left the benchmark interest rate unchanged at a record low of 1.25% in December, after cutting it twice earlier in the year to support flagging growth and curb a strengthening baht.

It will next review monetary policy on Feb. 5

The MPC has closely monitored the impact of exchange rates on the export sector given heightened external risks, the central bank said.

Southeast Asia’s second-largest economy is heavily reliant on exports, which have been hit by global trade tensions. Strength in the baht, Asia’s top performing currency in 2019 – has cut trade competitiveness.

The central bank has forecast economic growth of 2.8% this year, which is up slightly from an estimated 2.5% in 2019, a five-year low.

Official 2019 gross domestic product (GDP) data is due on Feb. 17.

For the full letter, click on https://www.bot.or.th/English/MonetaryPolicy/openLetter/OpenLetter_2020.pdf

(Editing by Jacqueline Wong)


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