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Thailand's central bank held its benchmark interest rate steady on Wednesday as widely expected, but a growing split among board members reinforced views that it may soon start tightening policy for the first time in years. Noting that Southeast Asia's second-largest economy is continuing to gain traction, the Bank of Thailand (BOT)'s monetary policy committee (MPC) voted 5-2 to hold its one-day repurchase rate at 1.50 percent.
The rate has been held steady since April 2015, just above the all-time low of 1.25 percent Two members voted for a quarter-point increase, arguing that keeping borrowing costs too low for too long could cause households and companies to underestimate financial risks. In the last two meetings, only one board member had voted for a hike.
Twenty-one of 24 economists in a Reuters poll had predicted the MPC would stand pat. The rest had forecast a rise of 25 basis points (bps) to 1.75 percent, as improving growth pushes up inflation closer to the mid-point of the BOT's 1-4 percent target. "The committee viewed that the current accommodative monetary policy stance remained conducive to the continuation of economic growth and was appropriate given the inflation target," the MPC said in a statement. While policy should remain supportive, "the need for currently accommodative monetary policy would be gradually reduced", it said.
Analysts said conditions look ripe for the central bank to start normalising policy soon from global crisis-era levels, but they believe the pace oof tightening will be gradual "The BOT continues to signal a policy move in recent months, with one additional vote for a hike at this meeting, we think the BOT will raise its policy rate by 25 bps at the next meeting on November 14," said Charnon Boonnuch, an economist at Nomura in Singapore.
Capial Economics agreed: "Looking ahead, the economy's solid growth outlook means monetary policy tightening is likely over the coming months." However, Thai policymakers will be cautious of the impact of rate rises on the baht currency and export competitiveness, Capital Economics added in a note.
In the Reuters poll ahead of Wednesday's meeting, 12 of the 18 analysts who gave a medium-term view predicted a 25 bps hike before year-end, while the rest saw no change.

Copyright Reuters, 2018

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