Economy faces uncertainty, monetary policy to stay accommodative

Economy faces uncertainty, monetary policy to stay accommodative

Domestic tourists enjoy the view from the Jungle Club in tambon Bophut of Koh Samui, Surat Thani province, on Monday. Revival of the tourism sector will be key to the economic recovery. (Photo: Dave Kendall)
Domestic tourists enjoy the view from the Jungle Club in tambon Bophut of Koh Samui, Surat Thani province, on Monday. Revival of the tourism sector will be key to the economic recovery. (Photo: Dave Kendall)

The central bank said on Monday there was high uncertainty facing the economy and monetary policy would remain accommodative to support a recovery from the country's most prolonged outbreak of the coronavirus.

The Bank of Thailand (BoT) has forecast economic growth of 0.7% this year, bottoming out in the third quarter and growing 3.9% in 2022.

The economy contracted 6.1% last year, with the key tourism sector still struggling.

The country’s economic recovery may still lag others and "next year, our baseline is that the financial sector and monetary policy must remain supportive," Assistant Governor Piti Disyatat told an analyst meeting.

The BoT has left its policy rate unchanged at a record low of 0.50% since mid-2020 after cutting it three times earlier that year to help the economy. It has since focused on financial and debt relief measures.

The BoT has fully implemented key monetary policy tools, including interest rates and overall financial conditions, Mr Piti said, adding more targeted fiscal and financial measures would be key.

Monetary policy is a blunt tool while financial measures are a facilitator that has fully been supportive, he said, adding low inflation also gave "a degree of freedom to us to remain accommodative, to some extent".

At a separate seminar, Finance minister Arkhom Termpittayapaisith said monetary policy must support fiscal policy and ensure sufficient liquidity in the system, as government stimulus measures will generally increase inflation.

"In a crisis like this, monetary policy must stop doing its job for a while to let fiscal policy work," he said.

The economy next year will be driven by domestic consumption and a vaccine rollout but the labour market remains fragile with an expected 3.4 million unemployed or partially employed by year-end, said senior BoT director Chayawadee Chai-Anant.

The country will reopen to more vaccinated foreign visitors next month.

The baht's volatility was in line with regional currencies and the BoT had acted to ensure it would not be an obstacle to economic recovery, said senior BoT director Sakkapop Panyanukul.

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