Analysts do not expect the Bank of Thailand to cut the interest rate this year amid growing confidence in the country's economic outlook.
Some even expect the policy rate to be raised later this year to fight rising inflation.
The central bank's Monetary Policy Committee (MPC) yesterday voted 6-1 to maintain the one-day repurchase interest rate, which is the benchmark for the local financial market, at 2.75%.
The one dissenting voice called for a cut of a quarter percentage point to deter foreign capital inflows and protect against uncertainty in the world economy.
The MPC's statement underlined robust domestic demand as being the key growth engine. It said a gradual recovery of exports would propel the economy to grow by more than 4.9% as previously forecast.
It said inflation has risen "somewhat as a result of an increase in oil prices" but added the decision to maintain the interest rate came from remaining global economic uncertainties and risks to domestic financial stability including rising asset prices.
Analysts believe the MPC's statement ruled out the possibility of an interest rate cut, but they have mixed views on the timing of a rate increase.
After the government's strong push for a rate cut to deter foreign capital inflows, the MPC's decision also reassures the market that the committee is free from political interference.
Su Sian Lim, HSBC's Asean economist, said the MPC had used a slightly more hawkish tone, saying in its statement that economic growth is set to be "faster than projected in the periods ahead".
"Today's no-change decision sends the message that the MPC continues to make decisions rationally and that it remains credible and independent in spite of the government's pressure for rate cuts," she said.
An interest rate increase can be expected in the middle of this year, possibly in May or July.
Santitarn Sathirathai, a senior economist with Credit Suisse, said the MPC could not cut the interest rate throughout 2013 because of upside prospects for the world and Thai economies, rapidly rising domestic consumer debts and a subsequent rise in prices.
"We expect inflation to average 3.7% in 2013, higher than the Bank of Thailand's estimate of 2.8%, due to the lagged impact of strong growth, wage increases and a likely increase in energy prices. This means that the real policy rate will dip further into negative territory," he said. He expects the MPC to increase the interest rate early next year.
Benjarong Suwankhiri, team head of TMB Analytics, said the MPC had given relatively more weight to domestic economic issues than the need to stem foreign capital inflows. The committee was more optimistic about growth following the National Economic and Social Development Board's announcement of much better than expected growth for last year of 6.4%, compared with a forecast 6%, and an expectation of an oil price increase, he said.
About the author
- Writer: Parista Yuthamanop