Worried monetary panel holds policy at 1.5%

MPC’s secretary Titanun Mallikamas said the committee agreed that economic expansion is slower than expected due to a decline in exports and its knock-on effect on domestic demand. 

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Headline inflation is now projected to be under the lower bounds of the targeted figure, although overall financial conditions remained “accommodative”, Titanun said. 
Financial stability risks had already been addressed to some extent, though there remained pockets of risks that warranted monitoring. 
The committee decided an accommodative policy rate would contribute to continued economic growth and help raise headline inflation closer to its target.
Merchandise exports contracted more than expected due to weaker economies among Thailand’s trading partners and global trade in general. 
Tourism is also growing more slowly than anticipated. 
Private consumption is expected to slow further despite fiscal stimulus measures because of declining household income and employment, particularly among export-related manufacturing firms, elevated household debt and the impacts of natural disasters. 
Private investment is also seen wavering, but a rise in foreign companies relocating their production bases here and in public-private partnership infrastructure projects is shoring it up. 
Public expenditure has slowed owing partially to delays in state-owned enterprise investment projects. 
Titanun said the committee would monitor external risks from intensifying trade tensions and the economic outlook of China and other advanced economies that could affect domestic demand. 
He said core inflation was expected to moderate due to subdued demand-pull inflationary pressures, but the committee felt structural changes contributed to more persistent inflation than in the past, such as the expansion of e-commerce, rising price competition and technological development reducing production costs. 
It also expects headline inflation to increase towards target in 2020 in line with economic expansion.
There is ample liquidity in the financial system. Real interest rates remained at a low level. Government bond yields declined. These allowed financing by the private sector to continue expanding. 
However, loans extended to both businesses and consumers will exhibit slower growth, Titanun said. The committee expressed concern over the baht’s appreciation against trading partners’ currencies, which could affect the economy to a larger degree amid overseas uncertainties. It plans to closely monitor exchange rates and capital flows and consider implementing additional measures if necessary.
The committee found that implemented macroprudential measures had to some extent curbed vulnerabilities in the financial system, but vigilance was needed regarding search-for-yield behaviour that could result in risks being under-priced, debt accumulation and debt serviceability of households and SMEs, and growth in assets held by saving cooperatives. 
The committee acknowledged that, despite using policy tools as appropriate, the Thai economy would continue to face structural problems affecting competitiveness and economic growth.