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Thai central bank chief isn’t ruling out rate cut

Reporting by Sri Jegarajah, Writing by Ansuya Harjani
A money exchange bank teller counting Thai baht notes in Bangkok, Thailand.
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The Bank of Thailand (BOT) has room to turn more accommodative and could jump on the easing bandwagon if economic activity doesn't pan out as expected, said Governor Prasarn Trairatvorakul.

"Suppose [as] time goes by…consumption, tourism, government spending do not turn out as [expected]. Then we need to ask if we have the policy space to be more accommodative," Trairatvorakul told CNBC.

"The answer is yes," he said, adding that subdued inflation has opened up room for policy easing.

Like many Asian economies, Thailand faces easing inflation driven by the collapse in oil prices.

The consumer price index fell 0.4 percent on year in January, missing forecasts of 0.3 percent rise and down from the 0.6 percent in December. It was the first time consumer prices fell year-on-year since 2009.

Comfortable for now

For now, however, the majority of the BOT's monetary policy committee members are comfortable where rates are, he said.

Bank of Thailand: Rate cut is an option

At the central bank's policy meeting last month, five of its seven members voted in favor of keeping rates on hold, with two recommending a cut of 25 basis points.

The BOT has kept its key interest rates unchanged at 2 percent since March 2014, despite slowing growth.

In December, the central bank trimmed its economic growth forecast for 2015 to 4 percent from 4.8 percent, citing lackluster export demand and shrinking farm incomes.

Market expectations

Market watchers expect low inflation will prompt the central bank to join the global easing party in the coming months.

Read MoreThis Asia market is rocking it, but analysts remain doubtful

"In Thailand, we continue to expect the Bank of Thailand to cut its main policy rate by 25 basis points to 1.75 percent in coming months. The main driver should be inflation, which would probably fall significantly below the central bank's inflation target," said Santitarn Sathirathai, economist at Credit Suisse.

"This would mean a real interest rate that is 'too high' given an expected lackluster domestic economic recovery," he said.

Bracing for Fed tightening

Looking ahead to the Federal Reserve's first rate hike which some investors expect as early as June, Trairatvorakul did not appear concerned about heavy outflows from Thailand's asset markets.

"This news has been known for quite a while and the market has absorbed it for quite a period of time already," he said.

"Taper tantrum [was] a good test for Thailand. And [during] taper tantrum, we did quite OK, there were no significant outflows from this market," he said.

"Taper tantrum" refers to the period of May-September 2013, when financials markets fretted over the withdrawal of U.S. monetary stimulus.

Thailand's benchmark SET index fell around 11 percent during this period.