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Central bank seen hiking key rate for first time since 2011

Started by thaiga, December 17, 2018, 09:13:30 PM

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Central bank seen hiking key rate for first time since 2011

Thailand's central bank is expected on Wednesday to hike its key interest rate from near-record lows for the first time in more than seven years, a Reuters poll survey showed.

An increase would reflect how policymakers are wary of financial risks and would give them some room to cut the benchmark later if global economic conditions deteriorate.

Fourteen of 17 economists polled by Reuters predicted the Bank of Thailand (BoT)'s monetary policy committee (MPC) will raise its one-day repurchase rate by 25 basis points to 1.75%, the first increase since August 2011.

The other three, citing slowing growth and inflation, expected the rate to be at 1.50%, where it's been since April 2015 and just above the record low of 1.25%.

Eight of 11 analysts who gave a medium-term view expected the rate to be at 1.75% at least until mid-2019.

"The BoT is concerned about financial stability risks... from an extended period of low interest rates," said Charnon Boonnuch, an economist at Nomura in Singapore, who forecast a hike this week and then no change throughout 2019.

Capital Economics said a hike on Wednesday will be a case of "one and done", due to the economy's weakening outlook.

Growth in Southeast Asia's second-largest economy stalled in the third quarter from the second as exports slowed and tourism has been hit by falling numbers of Chinese visitors.

The BoT has said it might trim its 2018 growth outlook from 4.4% when it reviews that on Wednesday. Last year's growth was 3.9%, the best in five years.

On Nov 14, the MPC voted 4-3 to hold the key rate but noted a reduced need for "accommodative" policy.


BoT Governor Veerathai Santiprabhob said last month the policy rate would still be low, even if there is policy tightening, which will be data-dependent.

Wednesday's decision will be another "close call", and it would be "preferable to wait" given risks including US-Sino trade tensions and Brexit, said Kobsidthi Silpachai, head of Kasikornbank's capital markets research.

Prakash Sakpal, ING economist in Singapore, predicts no policy change now.

"We believe the Bank of Thailand has missed the boat. Growth has already started to slow down and inflation has dipped below 1% - not really the right time to change policy, he said."

November's annual headline inflation rate was 0.94%. In the previous seven months, the rate was inside the BoT's target range of 1-4%.

Anyone who goes to a psychiatrist should have his head examined.

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