Anti-government protesters travel on a pick-up truck near the interior ministry building, which is being surrounded by fellow protesters, in Bangkok yesterday. Thailand’s central bank warned of “substantially increased” risk to economic growth after the weekend’s disrupted general election did nothing to restore stability in the politically polarised country. 

Reuters/Bangkok


The Bank of Thailand’s monetary policy committee (MPC) felt the risks to economic growth had increased substantially due to political unrest and worried that export orders could take a hit, according to minutes of its last rate-setting meeting.
At the meeting on January 22, the MPC voted 4-3 to leave the policy rate unchanged at 2.25%, a three-year low. Most economists had expected the rate to be cut by a quarter of a point to help businesses cope with the country’s political crisis.
Thailand held a general election on Sunday but anti-government protests disrupted voting in one-fifth of constituencies. Protesters trying to oust Prime Minister Yingluck Shinawatra have forced ministries to close their doors and blocked some roads in Bangkok for weeks.
The minutes of the January 22 meeting, published yesterday, said the MPC “agreed that the downside risks to growth have increased substantially. Some members noted that any benefits of global growth pick-up this year on Thai exports and tourism could be restrained by the ongoing political situation.” “Growth impact could be more pronounced if a prolonged unrest were to cause a switch of export orders to other countries, with potential knock-on effect on domestic spending,” they said.
The four members who voted for no rate-change thought further policy easing was unlikely to lend much support to private consumption and investment while the political crisis was unresolved.
Overall, the committee felt that “safeguarding financial stability remains a cornerstone for economic recovery in the period ahead”.
Three members voted for a rate cut of 25 basis points, seeing a greater role for monetary policy in shoring up private confidence and supporting the economy, given the higher risks to growth, the minutes said. In November, soon after the protests began, the MPC unexpectedly voted 6-1 to cut the policy rate by 25 basis points.
At the January 22 meeting, the committee slashed its economic growth forecast for this year to around 3% from about 4%. But a week later, central bank Governor Prasarn Trairatvorakul said growth could be even lower than 3% as the unrest had affected consumption and investment.
Economic data released since the MPC meeting show continuing weakness. Factory output in December fell 6.1% from a year earlier, and while exports that month were up 1.9% on an annual basis, central bank indexes for consumption and investment kept falling.
The January 22 minutes said private investment had been further delayed, amid uncertainties regarding economic recovery and the political situation. Public spending and investment had also been postponed. The baht has been pushed down against the dollar by the political unrest, which makes Thai exports cheaper.
“Exports have improved in most market segments and products, but could not compensate for a slowdown in domestic demand,” the minutes said. And the committee also noted the benefits of having stable exchange rates in an uncertain economic environment and at a time of fragile private confidence, the minutes said.
Tourism could be further affected by a prolonged political crisis but should recover quickly once the situation stabilises, the minutes said. But private consumption would take longer to recover due to subdued consumer
confidence.
The minutes said government bond yields had decreased since the November 27 meeting on expectations of a rate cut, with new issuance of government bonds likely to be reduced because of delays to 2tn baht ($61bn) in public works investment until a new government was formed.