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Bank of Thailand holds policy rate at 1.50% but flags financial system risks


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Bank of Thailand holds policy rate at 1.50% but flags financial system risks

The Bank of Thailand maintained its policy rate at 1.50% but warned it was watching "pocket of risks" that might weaken the financial system.

Voting 6-0 in favor of maintaining the rate, with one member unable to attend the meeting, the central bank's monetary policy committee said the decision was appropriate given Thailand's continued economic growth and gradually rising headline inflation.

While the Thai economy expanded further and employment rose, the bank noted that private consumption growth was still modest and will require structural policies to be addressed properly.

"Overall financial conditions remained accommodative and conducive to economic growth. Financial stability remained sound overall," the bank said. "But it was deemed necessary to monitor to pockets of risks that might lead to the build-up of vulnerabilities in the financial system in the future especially given prolonged monetary accommodation."

The bank said it was particularly concerned about the search-for-yield behavior that might lead to underpricing of risks, and worsening debt serviceability of households and small and medium-sized enterprises.

Uncertainties related to U.S. economic and foreign trade policies and geopolitical risks are also key challenges to the country's otherwise improved growth outlook, the bank said, adding that it will closely monitor the baht's movements; the currency has fallen nearly 3% against the U.S. dollar in the past month and will likely remain volatile.

"Although its decision to keep the policy rate on hold at its last meeting was not unanimous, the central bank governor has since reiterated that monetary policy will remain accommodative," said Krystal Tan, an analyst at Capital Economics, in a note. "We maintain our view that rates will remain unchanged throughout 2018."