Thai center bank chief says monetary policy supportive, still high risks to growth

BANGKOK: Thailand's economy is recovering at a gradual but uneven pace and monetary policy is still supportive in the face of high downside risks, the central bank governor said on Thursday.

Although an army coup in May 2014 restored some stability, Southeast Asia's second-largest economy has been hit hard by sluggish exports and domestic demand, which is being further constrained by high household debt levels which are now equivalent to over 80 percent of gross domestic product (GDP).

"The recovery will be gradual with high downside risks, especially external risks. We can't be complacent as the recovery is not broad-based and many households are economically sensitive," Bank of Thailand Governor Veerathai Santiprabhob told a news conference.

Any steps to stimulate the economy by increasing credit available to households could exacerbate the household debt burden, he said, adding that such debt levels were unlikely to decrease and would remain a drag on consumption.

Still, he said monetary policy in terms of both interest rates and exchange rates will remain accommodative to help support the recovery.

The central bank has left the policy rate unchanged at 1.50 percent, near a record low of 1.25 percent, since surprise cuts in March and April last year, saying fiscal spending would help growth.

It next reviews policy on March 23, and most economists expect no change.

Faced with weak demand at home and abroad, the junta has stepped up fiscal spending and approved stimulus measures in a bid to boost activity.

The central bank has forecast economic growth of 2.8 percent for 2015, and sees a further pick-up to 3.5 percent this year. Official 2015 GDP data is due on Feb. 15.

The economy grew just 0.9 percent in 2014, its weakest pace in three years. Veerathai said global market volatility should have a little impact on Thailand due to its high international reserves, a large current account surplus and low foreign holdings of Thai debt.

"It's like we are travelling on a bumpy road but our car has good supporting systems so passengers are not that dizzy. But the engine may be slow somewhat and can't run as fast as passengers want," he said.

Veerathai also said the BOT planned to allow banks to lend in baht to Cambodia, Laos, Myanmar and Vietnam as well as southern China in order to help balance capital flows.

It will discuss ways of promoting the use of local currencies with neighbouring central banks, he said.