Thailand holds key rate with prospect for future hike rising

Thailand’s central bank left its benchmark interest rate unchanged near a record low as expected, with the prospect of a future tightening increasing as more monetary policy committee members dissented.

Five of the seven committee members at the meeting voted to hold the one-day bond repurchase rate at 1.5%, where it’s been since 2015, according to the Bank of Thailand’s statement on Wednesday. Two voted for an increase to 1.75%, compared to just one in the June and August meetings.

“The committee viewed that the monetary policy should remain accommodative although the need for currently accommodative monetary policy would be gradually reduced,” the central bank said in the statement.

Most central banks in Southeast Asia have raised rates this year to help support currencies caught in the contagion sweeping across emerging markets. While Thailand’s hefty foreign reserves and a current-account surplus have helped to shield the nation against the worst of the volatility, policy makers are laying the groundwork for rate hikes as inflation picks up.

What Bloomberg economists say...

Twenty one of 24 economists surveyed by Bloomberg predicted the decision, with three forecasting a quarter-point hike.

Inflation accelerated to 1.62% last month, the fastest pace since 2014. The central bank’s target is an annual average inflation rate of 1% to 4% for this year. The currency is the only gainer against the dollar in Asia this quarter.

The central bank retained its economic growth forecast for this year at 4.4%, and at 4.2% for 2019. The inflation estimate was kept at 1.1% for 2018, while the forecast for next year was cut to 1.1%.

Economic expansion slowed to 4.6% in the second quarter from a five-year high of 4.9% in the previous three months. The trade outlook is key as exports of goods and services are equivalent to about two-thirds of gross domestic product.