BoT poised to make further rate cuts

BoT poised to make further rate cuts

Fallout from Fed’s drastic dip spills over

Lavaron Sangsnit, director-general of the Fiscal Policy Office.
Lavaron Sangsnit, director-general of the Fiscal Policy Office.

The Bank of Thailand still has monetary policy space for further rate cuts to cushion the impacts from the Covid-19 outbreak and the central bank will take into account the US Federal Reserve’s emergency rate cut at its upcoming meeting, says a senior official at the Finance Ministry.

The rate cut would support the Finance Ministry’s recently launched relief measures and the second phase, which will be announced soon, said Lavaron Sangsnit, director-general of the Fiscal Policy Office (FPO).

The central bank will take into consideration at the meeting all the factors including the length and degree of the outbreak, he said.

The Fed made its second emergency rate cut in less than two weeks, lowering the benchmark borrowing rate by a full percentage point to a range of 0-0.25%, the lowest level since late 2015. The US central bank also said it will boost its bond holdings by US$700 billion.

The Bank of Japan on Monday followed in the Fed’s footsteps, calling an emergency meeting and unveiling a measure to double its annual capacity to purchase exchange-traded funds and Japan real estate investment funds, while New Zealand’s central bank at an unscheduled meeting shaved its policy rate to 0.25% from 1%.

Mr Lavaron said the Finance Ministry will seek measures to aid those affected by the outbreak and grassroots people, who bear the brunt, are the ministry’s focus.

Salaried workers are also affected but to a lesser extent than farmers and selfemployed groups, he said.

The ministry is speeding up concluding relief measures for the second phase to bring before the cabinet this month, he said.

Bigger cut possible

The central bank is expected to further cut the policy rate by at least 25 basis points at its March 25 meeting to help deal with the Covid-19 contagion following concerted emergency rate cuts by the Federal Reserve and some of its counterparts, said economists.

The Monetary Policy Committee (MPC) will likely trim the benchmark rate by 25 basis points or higher, and it could launch additional measures at the forthcoming meeting, said Yunyong Thaicharoen, chief economist of the Economic Intelligence Center (EIC) under Siam Commercial Bank, said.

“Even though the rate cut will not have much impact in boosting new demand, the MPC could believe a rate cut will improve sentiment amid high volatility in the global financial market,” he said.

Policymakers at the meeting are also likely to cut their economic growth forecast for this year.

The Bank of Thailand cut its policy rate by 0.25 percentage points to an unprecedented 1% at its February meeting to curb the impact of the outbreak, the delayed fiscal budget and severe drought conditions.

Mr Yunyong said it is likely to see a negative interest rate in Thailand, but it does not expect it at the forthcoming meeting.

With the policy space restriction, the MPC might also consider other measures, especially those to build up confidence and bolster liquidity, he said. Such measures include beefing up the baht to hover at an appropriate level and give forward guidance to communicate to the market that monetary policy easing will last until the outbreak’s impact recedes.

“The MPC at this meeting will act ahead of the curve. Looking forward, uncertainties are high. The Covid-19 outbreak will likely escalate in the next 1-2 months,” said Mr Yunyong.

The EIC last Friday warned that Thailand is heading for a technical recession in the first half and the research house slashed its 2020 GDP forecast to -0.3% from the previous 1.8% due to the increasing gravity of the Covid19 epidemic.

He did not rule out an emergency policy rate call by the Bank of Thailand, saying it has taken such a move in the past.

vice-president and head of research at CIMB Thai Bank (CIMBT), said it is quite certain the central bank will cut the rate at the upcoming meeting, but the question is whether it will be 25 or 50 basis points.

“I think the central bank will cut the rate by 0.25 percentage points and other measures including injecting liquidity to banking system to prevent a liquidity squeeze are also expected,” he said.

Rate schedule on track

The central bank has no plans to join in the global counterparts’ emergency interest rate call.

“The MPC meeting schedule remains unchanged on March 25,” a central bank official posted on the Line messaging app to reporters.

Chantavarn Sucharitakul, assistant governor for corporate strategy and relations at the Bank of Thailand, also commented on Line that the Fed’s move reflects concern over the situation in the financial markets in the world’s largest economy.

Further monitoring of the market’s reaction and the effect on confidence is needed, she said.

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