Statement by the Bank of Thailand:
The Thai economy as a whole continued to gain further traction and was expected to achieve higher growth than the previous assessment due particularly to continued improvements in merchandise exports and tourism driven by stronger global economic growth. Private consumption growth remained moderate partly because the economic recovery had yet to benefit household income and employment in a broad-based manner while household debt remained elevated. In the Committee’s view, these issues must be addressed through structural policies. Private investment picked up further with the improved economic outlook, and was projected to continue expanding with additional support from government projects. Meanwhile, public expenditure would be a driver of growth while there remained risks of delays in budget disbursement. Furthermore, Thailand’s growth outlook was still subject to external risks that continued to warrant monitoring, including uncertainties pertaining to US economic and foreign trade policies, retaliatory measures from trading partners of the US, and geopolitical risks.
Headline inflation was projected to edge up at a gradual pace on the back of the recovery in domestic demand and the increase in oil prices since last year, although the increase would be slower than the previous assessment as fresh food prices declined more than expected. Meanwhile, demand-pull inflationary pressures remained low and structural changes contributed to more persistent inflation than in the past.
Overall financial conditions remained accommodative and conducive to economic growth with ample liquidity in the financial system as well as low government bond yields and real interest rates. Such conditions allowed financing by the private sector to continue expanding with gradual improvements seen in the amount of credit extended to SMEs. On exchange rates, the baht experienced higher volatility in the recent period and its movements 2 in the period ahead would likely remain volatile mainly due to uncertainties pertaining to monetary, fiscal, and foreign trade policies among major advanced economies. Thus, the Committee would closely monitor exchange rate developments as well as impacts on the economy going forward.
The Committee viewed that financial stability remained sound but would continue to monitor pockets of risks that might pose vulnerabilities to financial stability in the future. These included, in particular, the search-for-yield behavior in the prolonged low interest rate environment that might lead to underpricing of risks, and the deterioration in debt serviceability of households and SMEs especially those affected by changes in structural factors and business models.
Looking ahead, Thailand’s growth outlook improved further particularly on the back of external demand while the strength of the domestic demand recovery and inflation developments must be monitored. Hence, the Committee viewed that monetary policy should remain accommodative and would stand ready to utilize available policy tools to sustain economic growth while also ensuring financial stability.