Bank of Thailand Raises GDP Forecast (Now 3.8%), holds rate
Jaturong: Household debt remains issue
The Bank of Thailand's Monetary Policy Committee (MPC) raised its economic growth forecast for this year because of expanding exports and tourism, but it kept the policy interest rate unchanged yesterday as widely expected.
The economic growth forecast for this year was increased to 3.8% from 3.5%, while next year's growth forecast was also given a nudge to 3.8% from 3.7%.
The rate-setting committee raised its economic growth projection because of robust exports and tourism expansion, while domestic demand has started to become more broad-based, said Jaturong Jantarangs, assistant governor of the monetary policy group and the MPC secretary.
"The economy has gained further traction based on stronger growth in merchandise exports and tourism, driven by the robust global economic recovery," Mr Jaturong said.
The committee also raised its export forecasts for both this year and next to 8% and 3.2% from 5% and 1.7%, respectively.
Mr Jaturong said the weaker export view for 2018 is because of an expected slowdown in global trade and this year's high base effect, as some manufacturing companies have moved their production bases into Thailand for merchandise exports.
The committee also raised its forecast for this year's tourist arrivals to 35.6 million from 34.9 million predicted earlier, but maintained the 2018 forecast at 37.3 million.
The National Economic and Social Development Board reported that Thailand's GDP rose by 3.7% year-on-year in the April-June period after expanding 3.3% in the first quarter.
The rise marked a 17-quarter high after the 5.2% growth spike in the first quarter of 2013. In the first half, the economy grew by 3.5% year-on-year.
Private consumption, meanwhile, continues to expand gradually as household purchasing power is not sufficiently strong, particularly for low-wage workers whose income has not recovered.
"We also observe that the deleveraging process of Thailand's household debt is rather slow and the ratio of household debt to GDP has yet to significantly drop," Mr Jaturong said.
The MPC has slightly raised its private consumption growth forecast for this year to 3.3% from 3.1%, but cut growth for 2018 to 3% from the 3.1% projected earlier.
"Employment will be the main factor dictating purchasing power and the decision to consume. The MPC has observed that the income of low-wage earners has yet to recover," Mr Jaturong said. "Headline inflation increased at a slower pace than the previous assessment, which is due primarily to the decline in fresh food prices as a result of higher output of fruit and vegetables."
Mr Jaturong said demand-pull inflationary pressures also remain low and are subject to structural changes such as the shift in production technology and e-commerce that might lead to a slower pace of inflation than in the past.
The MPC has slashed its headline inflation forecasts for both this year and next to 0.6% and 1.2% from 0.8% and 1.6%, respectively.
Mr Jaturong said headline inflation is expected to reach the lower band of the central bank's inflation target of 1-4% in the middle of 2018.
The seven-member rate-setting committee, with one absentee member, voted unanimously to leave the one-day repurchase rate unchanged at 1.5% for the 19th time despite pressure from the Finance Ministry to reduce it.
"For keeping the policy rate at 1.5%, the committee views the current policy rate level as remaining sufficiently accommodating, as it has been successful in supporting the economic recovery up until now," Mr Jaturong said. "Growth, inflation and financial stability will remain the main factors being considered by the MPC, but regarding the effects of the exchange rate on the economy, we might have to look into it sector by sector."
He said that in order for the committee to start raising its policy rate, a clearer recovery in domestic demand is needed.
Voravan Tarapoom, chairwoman of the Federation of Thai Capital Market Organisations, said holding the interest rate is better than a rate cut, as the current interest rate is low and a rate reduction would not help shore up economic growth.
Despite a preference from the Finance Ministry for a rate cut, the central bank unanimously kept its policy rate on hold, suggesting that the MPC does not share the same concerns about growth and inflation, said Joseph Incalcaterra, chief economist for Asean at HSBC.
"We agree with the central bank's assessment that growth numbers will look a bit rosier in the quarters ahead, but our optimism is a bit more tempered," Mr Incalcaterra said.