BANGKOK (Reuters) - Thailand’s central bank is ready to act if the baht’s moves are not in line with economic fundamentals, the governor said on Wednesday, adding that monetary policy easing will not help prevent capital inflows as interest rates are already low.
Businesses are urging the central bank to cut its benchmark rate to support slowing growth and slow a strengthening baht THB=TH, which is the region's top performer so far this year.
Monetary policy will need to mainly address domestic factors and the central bank is ready to adjust its policy rate THCBIR=ECI if the economic situation significantly changes from its estimates, Bank of Thailand Governor Veerathai Santiprabhob told analysts and reporters.
Thailand’s policy rate is among the lowest, with real interest rates also low among emerging countries, he said.
“Therefore, our interest rates are not attracting fund inflows. Cutting interest rates will not help much,” he said.
There remains risks to financial stability and the central bank has tools to tackle particular risks in the economy, Veerathai said.
Headline inflation will return to the central bank’s 1%-4% target range this year, he added.
The BOT has left its benchmark interest rate THCBIR=ECI unchanged at 1.75%, after hiking it in December for the first time since 2011. The rate is just 50 basis points above the record low.
The central bank will next review monetary policy on Aug. 7. Some analysts expect a rate cut later this year as growth falters, with ING seeing one as soon as next month.
Last month, the BOT cut its 2019 growth forecast for a third time in six months to 3.3% from 3.8% seen in March. Last year’s growth was 4.1%.
Veerathai said the outlook downgrade is because of the impact of global trade tensions on exports and a delay in government spending.
“But today we have the government, which will introduce economic measures. That will help ease the problems,” he said.
The BOT said it is worried about the baht’s strength and closely monitoring it, but it is concerned that Thailand may be seen as a currency manipulator.
The BOT is ready to impose additional measures if moves in the baht are not in line with fundamentals, Veerathai said.
On Friday, the central bank imposed measures against short-term fund inflows to slow the baht, which hit its highest level in six years against the U.S. dollar earlier this month.
The baht traded at 30.90 per dollar at 0628 GMT. It has gained 5.4% against the greenback this year.
Writing by Orathai Sriring; Editing by Jacqueline Wong