The government on Friday unveiled plans for fresh government stimulus as well as rule changes to improve monetary policy flexibility, stepping up efforts to cushion the blow from the novel coronavirus outbreak.
The latest stimulus would be funded by new borrowing and reallocation of the existing budget, and could be approved in a cabinet meeting on Tuesday, Deputy Prime Minister Somkid Jatusripitak said in a joint briefing on Friday. The overall planned package, including steps like loans, amounts to 10% of gross domestic product, he said.
Bank of Thailand Governor Veerathai Santiprabhob at the same briefing said the amount banks pay to a financial bailout fund will be cut to 0.23% of deposits annually from 0.46%, adding that this will improve the “transmission process” of monetary policy.
The economy is set for the worst contraction this year since the 1990s as tourism, exports and consumer confidence stall, putting pressure on the government to step up spending. At 10% of gross domestic product, the third package would be equivalent to about $50 billion based on the size of the Thai economy last year, according to data compiled by Bloomberg.
The change in the amount commercial banks pay into the Financial Institutions Development Fund (FIDF) will last for two years once approved. The central bank in December indicated the contribution rate could be seen as an effective lower bound for the benchmark interest rate.
The Bank of Thailand has cut interest rates to a record low of 0.75% this year and injected liquidity to stabilise financial markets.
The central bank said on Friday it is seeking a law that would enable it to purchase good quality, maturing corporate bonds that are being rolled over. The bank would be able to purchase at most half, but not all, of the debt being rolled over. The goal is to backstop the corporate bond market, Veerathai said.
Under another initiative, the monetary authority will seek legal changes so it can directly offer concessionary loans, similar to a policy rolled out to help the economy after severe flooding hit Thailand in 2011.
“The central bank’s measures are quite positive,” said Somprawin Manprasert, chief economist at Bank of Ayudhya Plc. “They will help boost confidence and reduce the chance of a liquidity crunch. The cut in the FIDF fee will improve interest rate transmission and open the door for further rate cuts.”
The administration has already rolled out economic packages designed to deliver a boost of more than 500 billion baht to mitigate the impact of the outbreak on businesses and individuals.
Confirmed cases of infection by the virus that causes Covid-19 have surged since the beginning of last month to 1,978, including 19 fatalities.
Thailand is also contending with a severe drought and feeling the effects of delayed outlays from the regular fiscal-year budget because of earlier political wrangling. The Bank of Thailand predicts a 5.3% economic contraction in 2020, which would be the bleakest performance since the Asian financial crisis.