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Thailand’s central bank keeps interest rates unchanged as the baht keeps on rising

Thailand’s central bank has kept its benchmark interest rate at 1.75% as widely expected by analysts, as the baht continues to rise, keeping policy makers upbeat.

In a majority vote, the monetary policy committee decided to hold the one-day bond repurchase rate at 1.75%, on Wednesday.

The central bank said, as it continues to monitor economic growth, inflation and financial stability the decision was appropriate.

‘The committee viewed that accommodative monetary policy would remain appropriate in the period ahead,’ The bank said.

Inflation has undershot the central bank’s 1% to 4% target range in the past three months.

Thailand’s baht on the rise

In their decision to keep interest rates unchanged, policy makers took into account the country’s strong currency performance.

The baht has surged more than 4% against the dollar so far this year, making it the best performer in a basket of major Asian currencies.

However, the central bank said the currency will remain “volatile” due to external risks.

Finance minister Apisak Tantivorawong said, an overshooting currency will put export-reliant Thailand at a disadvantage pushing pressure on Thailand’s central bank to control shifts in the baht.

Tantivorawong told reporters last week that the baht's strength is hurting exports of agricultural products.

The baht is currently steady on Thursday at 31.48 against the dollar, appreciating by 3.4% this year.

What’s driving the baht’s advance?

As Asia’s best performing currency this year, the baht has strengthened steadily due to several local and foreign factors, including the country’s account surplus, and inflation, which is at its slowest since 2017.

The country’s account surplus widened to $5billion in December from $1.6 billion in November, beating estimations while inflation remains at 04.% in December.

The finance ministry has said they expect a 4% economic growth in 2019, with exports predicted to climb 4.5 %.

Analysts predict that one the most defining factors strengthening the baht is the prospect that the US-China trade tensions may ease, boosting risk appetite.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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