Thailand holds rates: change of tack

Reading Thailand’s economic numbers is a tricky exercise right now, with the impact from the 2011 floods causing all sorts of bumps in the data. But the Bank of Thailand is confident that the economy is on the right track.

It decided on Wednesday that, for now, a hold is best, and kept interest rates at 2.75 per cent, having previously made a surprise cut at the last policy meeting. And the bank committee was as one, with all seven members voting to hold, while the previous cut was a split 5-2.

The BoT said in its statement:

The outlook of Asian economies has gradually improved with signs of recovery in exports, recent pick-up in China’s economy, as well as buoyant domestic demand.

The Thai economy continued its positive growth momentum from the previous meeting. The global impact has so far remained limited only to export-related sectors, while the greater-than-expected strength in domestic demand appeared to provide sufficient cushion against the adverse impact of export slowdown.

Contrast that with the central bank’s October statement:

Weak global demand had weighed more heavily on Chinese and regional economies than expected. Going forward, a more moderate growth outlook for the Chinese economy could dampen Asian exports further…. With upside risk to inflation contained, the majority of MPC members deemed that monetary policy easing was warranted to shore up domestic demand in the period ahead and ward off the potential negative impact from the global economy, which remained weak and fragile.

Quite a difference in tone.

So is that the end of the easing cycle? Perhaps. Economists at both Barclays and HSBC think the bank’s rate cutting may have come to an end. Barclays said that: “We now do not expect the central bank to cut the policy rate in Q1 13. We believe the central bank will keep rates unchanged unless the global economy faces a severe downturn that affects the recovery in exports.”

Su Sian Lim, ASEAN Economist at HSBC said in a note that

While we agree with its current assessment, we did not expect a change in tack this soon, given that there had appeared to be a high level of conviction behind last month’s decision to cut the policy rate. Today’s decision significantly lowers the odds of a follow-up cut in January. Beyond that, however, we continue to look for upward normalization of the policy rate, likely from mid-2013.

Related reading:
Thailand: export recovery slow
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Thailand economic growth exceeds forecast
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Bank of Thailand in surprise rate cut
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