BANGKOK, Aug 21 (Reuters) - Minutes of the latest Bank of Thailand policy meeting, where the benchmark rate was surprisingly cut, show that the central bank continues to feel financial system risks “pose vulnerabilities to financial stability”.
The bank’s monetary policy committee (MPC) said the “share” of households sensitive to negative income shocks had increased, which could weigh on ability of households to service their debts, according to minutes of its Aug. 7 meeting released on Wednesday.
Central bank data shows that at the end of March, total household debt was equivalent to 78.7% of gross domestic product, among the highest in Asia.
The BOT has worked with commercial banks to standardize debt service ratio (DSR) calculation in order to collate DSR data should additional measures intended to curb household debt become necessary , the minutes said.
At the Aug. 7 meeting, policymakers unexpectedly voted 5-2 to cut the benchmark rate by 25 basis points to 1.50%, citing faltering economic growth and strength of the baht. It was the first cut since 2015.
“Most Committee members viewed that more accommodative monetary policy would foster the continuation of economic growth and the return of headline inflation to target in the context of heightened uncertainties mainly from external factors,” the minutes said.
But the minutes said the two dissenters who wanted no rate change argued that “given the already accommodative monetary policy stance might not lend additional support to economic growth, compared with potentially increased financial stability risks.”
The MPC will next review policy on Sept. 25, when it looks set to lower its 2019 GDP forecast from 3.3%. Last year’s growth was 4.1%.
Most economist expect further policy easing later this year.
Southeast Asia’s second-largest economy reported annual second quarter growth of 2.3%, the weakest pace in nearly five years as exports slumped.
For the full minutes here
Reporting by Orathai Sriring; Editing by Richard Borsuk