Central bank keeps policy rate at record low, nudges up GDP outlook

Central bank keeps policy rate at record low, nudges up GDP outlook

The Bank of Thailand (BoT) left its key interest rate unchanged at a record low on Wednesday and upgraded its GDP outlook slightly as the economy showed some signs of recovery from the fallout of the coronavirus pandemic.

The BoT’s monetary policy committee voted unanimously to keep the one-day repurchase rate steady at a record low of 0.50% for a third straight meeting.

All 18 economists in a Reuters poll had expected the central bank to remain on hold after it already cut rates by 75 basis points so far this year.

The BoT also raised its gross domestic product (GDP) forecast for 2020, expecting the economy to shrink 7.8% this year compared to a previous forecast for a record 8.1% contraction. 

In a briefing after the decision, Assistant Governor Titanun Mallikamas said central bank policy remained accommodative but fiscal policy should be the driving force in a recovery, focusing on jobs and economic restructuring.

“Going forward, government policies from various agencies needed to be more targeted and timely,” he said.

The baht was little changed on the decision, down 0.5% against the dollar as of 2.16pm in Bangkok.

“The Thai economy remains weak. The political situation could pose an additional risk to the economy, given ongoing protests,” said Tim Leelahaphan, an economist at Standard Chartered Plc in Bangkok.“We still expect another rate cut in the fourth quarter unless fiscal and targeted monetary measures are stepped up.”

The central bank revised up its growth forecast for this year, predicting a 7.8% contraction compared with a previous projection of an 8.1% decline, but cut next year’s forecast to 3.6% growth from 5% previously.

In Transition

Thailand will undergo a transition in fiscal and monetary policy leadership over the next few months. Governor Veerathai Santiprabhob is leaving the central bank at the end of this month when his five-year term expires, handing over to Sethaput Suthiwart-Narueput, a member of the Monetary Policy Committee (MPC). The government also is seeking a replacement for Finance Minister Predee Daochai, who resigned in early September after less than a month in the position.

Mr Veerathai said in a recent interview that the bank has been studying unconventional policy steps such as yield-curve control, but doesn’t think they’re needed right now. While all options, including interest-rate cuts, remain on the table, targeted policies that get funds to the sectors that need them can be most effective, he said.

Other key points from the decision and briefing:

  • It will take two years for the economy to return to its pre-pandemic level
  • The MPC will assess the need for any fresh steps in the FX market, as a possible rebound in the baht could affect the economic recovery
  • The bank raised its inflation forecast for this year, to -0.9% from -1.7% in June, and for 2021 to 1% from 0.9%
  • The bank raised its 2020 export forecast -- now expecting an 8.2% contraction versus -10.3% in June -- while maintaining its 2021 forecast at 4.5% export growth
  • The forecast for tourist arrivals this year was lowered to 6.7 million, from 8 million in June. Next year’s forecast was lowered to 9 million from 16.2 million

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