The Bank of Thailand’s surprise move to keep interest rates steady rather than cutting could indicate the central bank has hit the limits of monetary policy amid continued political protests.
“The majority view of four members saw that the political gridlock could not be addressed by more accommodative monetary policy,” Roong Mallikamas, spokesperson for the Bank of Thailand, told CNBC on Thursday.
“Political uncertainty would likely cause delays in fiscal spending and dent private sector confidence,” she said. “Even if the export sector looked to improve on the back of strengthening global demand, it would likely not be enough to compensate for the weaker domestic demand.”
The central bank’s monetary policy committee voted four-to-three to keep rates on hold at 2.25 percent on Wednesday, compared with a consensus expectation for a 25 basis point rate cut to help counter slowing growth as political protests continue to disrupt the economy.
Despite the split vote, Roong noted all of the committee members share the same view on the economic outlook. The Bank of Thailand downgraded its expectations for 2013’s gross domestic product (GDP) from around 3 percent growth to less than 3 percent, and lowered its view on 2014 growth to around 3 percent from 4 percent.
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