The Bank of Thailand (BoT) has slashed its economic growth projection for this year again to 0.7% as the third wave of Covid-19 has had a more severe impact on the country's economy since the central bank conducted its earlier projection.
The BoT's Monetary Policy Committee (MPC) meeting on Wednesday decided to cut GDP growth forecast for 2021 to 0.7% from 1.8% last month.
In addition, the Thai economy for 2022 was projected to expand 3.7%, a decline from its previous forecast of 3.9%.
Given that the economy in 2021 would be affected by the Covid-19 outbreak more than expected with significant downside risks, the MPC decided to cut the growth forecast.
The committee has factored in both negative and positive factors, but the committee views that economic outlook would face higher downside risks, said MPC secretary Titanun Mallikamas.
For positive factors, the government's additional subsidy and stimulus measures would support Thailand's economy by 0.4%, and recovering exports would also contribute 0.1% to GDP, he added.
Given negative factors, Thailand's growth rate is expected to be lower than expected and hurt GDP growth by 0.2%, while the prolonged outbreak and harder impact would impact GDP by 1.1%.
Moreover, the delay in the country's reopening and declining foreign tourists' confidence would also impact the economy by 0.3%.
The MPC on Wednesday voted four to two to maintain the policy rate at 0.50%. Two members voted to cut the policy rate by 0.25 percentage point. One MPC member was unable to attend the meeting.
The most important issue for the Thai economy at present is to accelerate containment of the outbreak and distribution of vaccines to restore confidence and support the recovery in economic activities and income.
Under a baseline scenario of virus containment and the country's reopening, the MPC predicts the government can contain the outbreak and continues to relax the existing tougher containment measures in the beginning of the fourth quarter.
Then the government will cancel 14-day state quarantine for offshore travellers in the second quarter next year. With this scenario, foreign tourist arrivals are expected to be 150,000 this year and rise to 6 million next year.
For the minus scenario, the MPC forecasts the Covid-19 outbreak will be prolonged and easing containment measures will be delayed to the fourth quarter this year.
After that the government will revoke 14-day state quarantine for overseas visitors in the third quarter next year. With this scenario, foreign tourist arrivals would be 100,000 in 2021 and increase to 2 million in 2022.
Mr Titanun said the MPC views that fiscal and financial measures must be expedited to assist affected groups in a more focused and timely manner in line with the current situation.
The committee viewed that risks to the economic outlook remained high. The support must be provided by accelerating the distribution of liquidity and reduce debt burden for those affected.
"Most members viewed that financial measures would be more effective than a further reduction in the policy rate which was already low," he said.
As a result, most members voted to maintain the policy rate. Nevertheless, two members voted to cut the policy rate to support other measures in shoring up the economy and mitigate heightened risks in the period ahead.
In addition, the committee viewed that the government measures and policy coordination among government agencies would be critical to support the economic recovery.
Public health measures should aim at accelerating the procurement and distribution of effective vaccines to prevent the outbreak from being prolonged.
The MPC would monitor key factors affecting the economic outlook, namely the distribution and efficacy of Covid-19 vaccines, the outbreak situation in Thailand and abroad, as well as the adequacy of fiscal, financial, and credit measures.
The committee would stand ready to use additional appropriate monetary policy tools if necessary.