The Bank of Thailand on Wednesday stood pat on the policy rate as expected, though it is more optimistic over the country's economic prospects by upgrading this year's growth forecast to 4.1%.
The Monetary Policy Committee (MPC) surprisingly voted 6-1 to keep the one-day repurchase rate at 1.5%, the first time in nearly three years that the vote was split. The last policy rate move was seen in April 2015 when the committee cut the rate by 25 basis points.
It was the fourth time for the central bank to raise the 2018 economic growth projection. In December it increased the growth forecast to 3.9% from 3.6% predicted three months earlier.
"In deliberating its policy decision, the committee determined the Thai economy has continued to gain further traction and would achieve higher growth than previously assessed in the last quarter, driven by both growth in the external sector and gradual improvements in domestic demand. Headline inflation was projected to gradually rise, albeit at a slightly slower pace than previously assessed," said Jaturong Jantarangs, assistant governor of the monetary policy group and MPC secretary.
Robust merchandise exports, tourism driven by stronger global economic growth, and state investment are expected to be the main drivers for Thailand's economic growth, he said.
"Private investment picked up further with the improved economic outlook, and was projected to continue expanding with additional support from government projects. Meanwhile, public expenditure would be a driver of growth, though risks remain for delays in budget disbursement," the MPC statement said.
"Private consumption growth remained moderate, partly because the economic recovery has yet to benefit household income and employment in a broad-based manner, while household debt remained elevated. In the committee's view, these issues must be addressed through structural policies."
Most members viewed the current accommodative monetary policy stance as conducive to the continuation of economic growth, helping to foster the return of headline inflation to its target range, though the process could take some time, said the MPC.
One member believed prolonged monetary accommodation might induce households and businesses to underestimate potential changes in financial conditions, and that raising the policy rate would not hinder economic growth going forward.
"Thailand's growth outlook improved, particularly because of external demand, while the strength of the domestic demand recovery and inflation developments must be monitored. The committee believes monetary policy should remain accommodative and stands ready to utilise available policy tools to sustain economic growth while also ensuring financial stability," said the MPC.
Meanwhile, Finance Minister Apisak Tantivorawong said the domestic benchmark interest rate should not be raised this year because Thailand's economic recovery has not reached every sector.
Though conditions are improving, the recovery has not been broad-based and the ministry believes the MPC should not raise the interest rate, said Mr Apisak.
The seven-member MPC has to assess several factors for its policy decision, he said. Thailand's inflation remains below 1% and an interest rate hike will cause inflationary pressure to fall below the target band, said Mr Apisak.
Regarding a possible trade war between the US and China, it is believed all countries would be affected on an equal basis, with the only effect a dip in global trade volume, he said.
Despite the higher risk to Thai exports, the Commerce Ministry still maintains an 8% growth forecast for this year's shipments, said Mr Apisak. But exports could benefit from a trade war if countries buy from Thailand instead of the US or China, he said.
