Bank of Thailand holds key rate, lets fiscal policy lead

Bank of Thailand holds key rate, lets fiscal policy lead

The Bank of Thailand held its benchmark interest rate steady at an all-time low as fiscal measures take the lead in reviving the economy amid a renewed outbreak of Covid-19.

The central bank held the policy rate Wednesday at 0.5% in a unanimous decision, after cutting by a total of 75 basis points last year. Twenty-five of 27 economists in a Bloomberg survey predicted the hold, with two expecting a 25-basis point cut.

Assistant Governor Titanun Mallikamas said the central bank was preserving its policy space to use at the proper time, but was prepared to use additional monetary tools and was assessing the need for new measures in the foreign-exchange market.

“They still keep the door open to further easing if required. That said, they don’t have much room, at least on conventional rates,” said Mitul Kotecha, senior emerging markets strategist at TD Securities in Singapore. “It highlights that they are increasingly focusing on liquidity and macro-prudential tools.”

The baht pared the day’s losses after the decision, but was still down 0.2% against the dollar as of 2.20pm in Bangkok. 

Thailand’s total confirmed Covid-19 cases have more than tripled since a fresh outbreak began in mid-December, spreading to 80% of the country. The Finance Ministry last week cut its 2021 gross domestic product forecast to 2.8% growth, from the 4.5% it predicted in October, to account for the outbreak and new government stimulus measures.

In December, the central bank cut its own GDP outlook for this year to 3.2%, and has signalled it may need to revise it lower still.

Mr Titanun said stimulus and reviving exports offer some support to the economy. Still, he reiterated Wednesday that GDP may grow less than previously forecast due to the new virus wave and the likelihood that tourist arrivals will miss already lowered expectations.

“The economy continues to face downside risks going forward and needs support from a low interest rate,” he said. “The central bank kept the rate unchanged at this meeting and preserved its limited policy space to use at the right timing with the most effective impact.”

The government unveiled a series of stimulus measures last month, including $7 billion in cash handouts, to counter the new outbreak. Prime Minister Prayut Chan-o-cha approved loosening restrictions across the country from this week to allow businesses and schools to reopen.

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