Thailand keeps rate at record low, cuts GDP outlook

The central bank held the policy rate at 0.5% in a unanimous decision, after cutting by a total of 75 basis points last year. All 25 economists in a Bloomberg survey predicted the hold.

BANGKOK: The Bank of Thailand kept its benchmark interest rate unchanged at an all-time low and cut its growth forecast as it lets fiscal measures take the lead in reviving the economy from its sharpest fall in more than two decades.

The central bank held the policy rate at 0.5% in a unanimous decision, after cutting by a total of 75 basis points last year. All 25 economists in a Bloomberg survey predicted the hold.

Monetary policy must stay accommodative while “fiscal measures must continue to sustain the economy, ” the central bank said in a statement. It added that it would “monitor the adequacy of the government measures and various risks, ” and is “ready to use additional appropriate monetary policy tools if necessary.”

Many economists expect the Bank of Thailand to stand pat throughout the year because of its limited remaining policy space, letting fiscal policy do the heavy lifting in reviving the economy from its deepest contraction since 1998. The central bank yesterday cut its forecast for gross domestic product (GDP) growth this year to 3%, from 3.2% previously, as the key tourism industry remains mothballed.

“In addition to the weak economy, the other main concerns for the central bank are the strong currency and persistent deflation, ” Gareth Leather, senior Asia economist at Capital Economics, wrote in a note after the decision. “Both of these point in the direction of interest rates remaining low for the foreseeable future.”

The decision comes a day after the government approved steps to help businesses affected by the outbreak, including 250 billion baht (US$8.1bil or RM33.45bil) of soft loans and 100 billion baht for a programme allowing cash-starved companies to park their assets with lenders in exchange for credit.

The baht was down almost 0.3% against the US dollar after the decision, heading for its lowest close since early November, while the benchmark stock index was up 0.2%. The currency, which rose 5.8% against the US dollar in the final three months of 2020, is down 3.5% so far this year.

“The Bank of Thailand noted that they’ll monitor the Thai baht closely, and we think they’re likely to be comfortable with recent weakness as long as it does not become disorderly, ” said Mitul Kotecha, chief emerging markets Asia & Europe strategist at TD Securities.

Bloomberg Economics Asean economist Tamara Mast Henderson also said: “With still ‘high’ downside risks to an already soft growth outlook for 2021 and 2022, the door appears open for further support from the central bank, in our view. Even so, we still expect the Bank of Thailand to lean on other tools to support growth if needed, before considering further depletion of its limited conventional policy space.”

High oil prices and low tourist arrivals should mean a narrower current-account surplus, relieving some pressure on the baht, assistant governor Titanun Mallikamas told reporters in Bangkok.

“A strong dollar from US stimulus also helps reduce pressure on the baht, ” Titanun said. “But we can’t be complacent. We continue to monitor closely and try to fix the structural problem by creating an FX ecosystem.”

The central bank raised its forecast for headline inflation this year to 1.2%, while keeping its core inflation estimate at 0.3%. Export forecast was raised to 10% growth this year, from 5.7% in December.

The GDP is expected to grow 4.7% in 2022, down from 4.8% previously. Risks to the economy include speed of the vaccine rollout, pace of tourism revival and continuity of fiscal support. — Bloomberg

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