Bank of Thailand cuts interest rate to record low

Bank of Thailand cuts interest rate to record low

The Bank of Thailand’s Monetary Policy Committee (MPC) on Wednesday voted to cut the policy interest rate to a record low of 1.25% in a bid to boost Thailand’s economic growth impetus and support a targeted increase in headline inflation.

The current benchmark interest rate is akin to the same rate adopted during the 2009 global financial crisis.

Five of the seven-member rate-setting panel voted for a 25 basis points rate cut on grounds that a more accommodative monetary policy would contribute to economic growth and support headline inflation to rise toward the target, said the MPC statement.

On the contrary, two members voted to keep the policy rate unchanged, reasoning that a rate cut might not lend additional support for economic growth compared to a potential increase in financial stability risks.

Since a rate hike in December 2018 — the first since 2011 — the MPC had left the policy interest rate unchanged until the majority of committee members voted for a 25 basis points rate cut in August.

“In deliberating their policy decision, the committee assessed that the Thai economy would expand at a lower rate than previously assessed and further below its potential due to a decline in exports, which has affected employment and domestic demand,” said MPC secretary Titanun Mallikamas. “Headline inflation was projected to be below the lower bound of the inflation target.”

The MPC also supported the relaxation of foreign exchange regulations “to encourage capital outflows and promote more balanced capital flows, which would alleviate pressures on the baht and help the private sector to better manage exchange rate risks,” said Mr Titanun.

The latest rate cut is an attempt to lend support to bolster Thailand’s lacklustre economic conditions and stem the baht’s strengthening value, whereby the local currency has appreciated by around 8% against the greenback on a year-to-date basis, said Asia Plus Securities (ASP) in its note.

October’s inflation at 0.11% also provided a room for the MPC’s decision to implement further monetary stimulus, said ASP.

“The rate cut is as expected and it is believed that the move will provide a short-term positive sentiment to rein in the baht appreciation,” said ASP.

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