Any further increase in Thailand's policy interest rate would not be continuous, as an accommodative monetary policy is still needed to shore up private consumption and investment, according to the edited minutes of the Bank of Thailand's Monetary Policy Committee (MPC).
"The committee viewed that accommodative monetary policy would remain appropriate in the period ahead, and that the policy rate increase would be gradual and not in a continuous manner as in the past," said the MPC minutes released yesterday.
An accommodative monetary policy would also enable Thailand's economic growth to percolate to a larger section of the economy, the minutes said.
The seven-member rate-setting panel raised the policy interest rate for the first time since 2011, by 25 basis points, on Dec 19.
Five of the seven members voted for a quarter-point rise in the one-day repurchase rate to 1.75%, up from 1.5% where it stood for 28 meetings in a row. Two members preferred no change in the rate.
The Bank of Thailand is among the last central banks in Asia to start the rate-hike cycle, as high foreign reserves, a current account surplus and subdued inflation allowed for the rate to be kept below the US Federal Reserve's benchmark rate.
"Most committee members determine that the prolonged low interest rate could lead to persistent build-up of vulnerabilities in the financial system, and thus the policy rate increase at this meeting [Dec 19] would help rebalancing consumption, saving, borrowing, and investment and would also support sustainability of economic expansion in the long run, particularly in view of the fact that Thailand was becoming an ageing society," the minutes said.
Despite Thailand's financial stability, there is a need to monitor developments in the mortgage loan market when the macroprudential measure on mortgage loans becomes effective in April, the MPC said.
Other build-ups of financial vulnerabilities include elevated household debt, accelerating auto loans, prolonged low interest rates affecting future savings, and search-for-yield behaviour leading to underpricing of risk, the minutes said.
"Given the prolonged low interest rate environment, large corporates sought a greater amount of funding through both commercial bank loans and the bond market and invested in both core and non-core businesses, including some overseas enterprises," the MPC said. "These risks will be more closely monitored."