Thai central bank says economy in recovery, hints rate cut unlikely

BANGKOK: Thailand's central bank said the country's military government should use revenue and spending tools to stimulate the recovering economy before turning to monetary policy, dampening expectations for a cut in interest rates for now.

"The impact of monetary policy will not be big, unlike that of fiscal policy. If we have another option, we should use it. Cutting rates should be done when other tools can't help," Bank of Thailand Governor Prasarn Trairatvorakul told reporters on Saturday.

The economy avoided a technical recession in April-June, but it still shrank 0.1 percent in the first half due to weakening exports and months of political unrest that led to a military coup in May.

The central bank's monetary policy committee voted 6-1 to leave the key interest rate unchanged at 2 percent for a fifth straight meeting on Nov. 5, but left door open to a possible cut as the economy is growing more slowly than it forecast earlier. One member wanted a cut.

Most economists expect no change in the rate in coming months but some think the chance of a cut has risen.

Prasarn said the economy was expected to have grown further in the third quarter, possibly more than 0.1 percent from a year earlier, but the pace of recovery might not be as high as earlier expected.

Third-quarter gross domestic product (GDP) is due on Monday. Economists in a Reuters poll forecast on-quarter growth of 1.8 percent and on-year growth of 1.0 percent.

The military government is banking on infrastructure spending to spur on growth but most of these projects are unlikely to bear fruit until next year or later.

Prasarn also said the central bank's proposal to adopt headline inflation next year as a guiding target of its monetary policy did not mean the policy rate would be cut the instant inflation falls below target.

The plan, agreed by the finance minister, is to switch to targeting headline inflation of 3.0 percent plus/minus 1.5 percentage points from a core inflation target range of 0.5-3.0 percent currently used.

However, some economists say the headline inflation target appears to support the junta's pro-growth bias and therefore favours easier monetary policy.

Core inflation, which strips out fresh food and energy prices, was 1.7 percent in October, while headline inflation stood at 1.5 percent due to lower oil prices.