Thai raises GDP growth forecast again, holds key rate steady

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BANGKOK (March 28): Thailand's central bank on Wednesday raised its forecasts for economic growth and exports this year, saying Southeast Asia's second-largest economy is continuing to gain traction.

The rosier growth forecasts came after the Bank of Thailand's Monetary Policy Committee (MPC) left the benchmark interest rate unchanged as expected, but surprisingly the vote was split for the first time in nearly three years.

The committee voted 6-1 to keep the one-day repurchase rate at 1.50%, where it has been since a cut in April 2015. The dissenting member voted for a 25 basis point increase.

The central bank upgraded its 2018 economic growth forecast for the fourth time, taking it to 4.1% from 3.9% seen in December. A year ago, it saw 3.6% growth.

Faster growth will be driven by strong global demand for Thailand's exports and a more gradual improvement in its domestic demand, the central bank said.

It now expects exports — a key economic growth driver — to rise 7.0% this year, compared with its previous forecast of 4%, but noted there are risks from uncertainties over tougher US trade policies.

"Most members viewed that the current accommodative monetary policy stance remained conducive to the continuation of economic growth and should foster the return of headline inflation to target, although the process could take some time," the MPC said in a statement.

But one committee member said keeping rates too low for too long could make households and companies underestimate the risks of potential changes in financial conditions, and argued that raising the policy rate now would not hinder economic growth, the statement said.

The BOT also issued its first growth forecasts for 2019, projecting GDP would expand 4.1% with exports up 3.6%.

The economy grew 3.9% in 2017, the fastest pace in five years, while exports jumped about 10%, though it is not yet firing on all cylinders, with growth still heavily reliant on exports and few signs of inflationary pressures.

Indeed, the central bank trimmed its inflation forecast for 2018 to 1.0% from 1.1%. But it said it expected inflation to return to its 1-4% target range in the second quarter of this year.

Analysts said the MPC's split decision did not appear to signal the risk of a policy shift any time soon.

"With no sign that robust economic activity is feeding through to an increase in price pressures, there is no rush for the BoT to tighten policy," Krystal Tan at Capital Economics said in a research note.

"Barring a sudden change in rhetoric, we continue to expect the policy rate to be left unchanged at 1.50% for the rest of this year," Tan said.

Nomura economist Charnon Boonnuch agreed: "I still expect no rate hike on the horizon, given stubbornly weak inflationary pressures."

Earlier on Wednesday, Finance Minister Apisak Tantivorawong said Thailand should not tighten monetary policy this year as economic growth was not yet broad-based and inflation was still below the BOT's target range.

The BOT last raised its policy interest rate in August 2011, a quarter-point increase to 3.50%.

The central bank said it would continue to closely watch exchange rates, with the baht likely to remain volatile, assistant governor Jaturong Jantarangs told a briefing.

The baht has appreciated about 4.4% against the dollar this year, hovering over four-year highs, after gaining 9% last year, but the gains do not yet appear to have damaged its export competitiveness.

The central bank has said it will act if the baht moves too fast, although it thinks the baht's strength has had little impact on exports.