The Bank of Thailand's rate-setting committee left the policy rate unchanged yesterday as widely expected, while marginally upgrading its economic growth forecast to 3.9% for both this year and the next as the economy gains further traction.
Six of the seven-member committee voted unanimously at the meeting to keep the rate at 1.5%, where it has been since April 2015.
One member was absent.
Overall financial conditions remain conducive to economic growth.
Financial stability remained sound overall, but there were pockets of risks that might lead to a build-up of vulnerabilities in the financial system going forward, said the Monetary Policy Committee (MPC).
The MPC believes its monetary stance should foster the return of headline inflation to its target range, although the process could take some time.
The economy should grow faster than its previous assessment, driven by growth in the external sector as well as a gradual recovery in domestic demand, said the committee.
The MPC in September raised its GDP growth forecast to 3.8% for this year from 3.5%, and next year's growth to 3.8% from 3.7%.
"After a long time, we are using the phrasing 'upside risk to growth'. I haven't used this wording for a while. This reflects the apparent economic improvement," said Jaturong Jantarangs, assistant governor of the monetary policy group and MPC secretary.
The central bank's latest forecast for this year's economic growth matched with the National Economic and Social Development Board's estimate.
Despite the upward revision on the country's economic outlook, the committee cut its forecasts on both public and private investment growth for next year after the disappointing reading in the third quarter
The central bank trimmed its 2018 public investment growth forecast to 9% from 9.8% previously predicted, while private investment was also slashed to 2.3% from 3% earlier estimated. The cuts could be attributed to the previous optimistic forecast and the delay in public expenditure disbursement.
Mr Jaturong said that as long as the government's investment budget disbursement remains on track, the worse-case scenario of delayed general elections would not have a significant impact on the overall economy.
Private consumption continued to expand, albeit at a gradual pace, given that improvements in income growth were not sufficiently broad-based and household debt remained high.
Despite the country's household debt ratio declining to 78% of GDP after peaking at 82%, it is still high and pressuring domestic consumption.
He said private investment in machinery and equipment continued to pick up. Loans for small- and medium-sized enterprises (SMEs) have been rising, particularly, in the property, food and drink and service sectors.
Nevertheless, Thailand's growth outlook is still subject to risks that warrant close monitoring and the factors include uncertainties pertaining the US economic and foreign trade policies as well as geopolitical risks.
Meanwhile, demand-pull inflationary pressures picked up somewhat but remained low.
In addition, structural changes also contributed to more persistent inflation than in the past.
On the whole, headline inflation was projected to slowly rise from the recovery in domestic demand.
Overall financial conditions remained accommodative and conducive to economic growth with ample liquidity in the financial system as well as low government bond yields and real interest rates.
Such conditions allowed financing by the private sector to continue expanding, with recent improvements seen in credits extended to SMEs across business sectors.
On exchange rates, the baht's movements relative to those of trading partner currencies were largely unchanged. In the period ahead, exchange rates might experience volatility due to uncertainties on the external front.
Even though the baht rose nearly 10% this year, emerging as the second-best performing currency in Asia after the Korean won at 11.6%, Thailand's exports grew at a strong pace.
The central bank raised its 2017 export growth forecast to 9.3% from 8% seen in September.
In 2018, the Bank of Thailand forecasts merchandise shipment will grow 4%.
The committee said that financial stability remained sound but it will continue to monitor pockets of risks that might threaten financial stability in the future.
These included, in particular, the search-for-yield behaviour amid the low interest rate environment for an extended period that might lead to underpricing risks, and the deterioration in debt serviceability of households and SMEs, especially those affected by changes in structural factors and business models.
"Looking ahead, Thailand's growth outlook improved further, particularly on the back of external demand, while the strength of the domestic demand recovery and inflation developments must be monitored. Hence, the committee sees that monetary policy should remain accommodative and will stand ready to utilise available policy tools to sustain economic growth while also ensuring financial stability," the MPC committee's statement said.
