June 12, 2024

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Thai Central Bank Holds Key Rate, Cuts 2021 Growth Forecast

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(Bloomberg) — The Bank of Thailand kept its benchmark interest rate unchanged for a fifth straight meeting to preserve its limited policy space, while reiterating concerns about a currency rally and lowering its economic growth forecast for next year.


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The central bank held the policy rate Wednesday at 0.5% in a unanimous decision, after cutting by a total of 75 basis points earlier this year, and said it stood ready to use more monetary tools if necessary. Sixteen of 17 economists in a Bloomberg survey predicted the hold, with one expecting a 25-basis point cut.

The bank will “monitor the adequacy of the government measures and various risks, especially the new wave of the domestic outbreak, in deliberating monetary policy going forward,” according to a statement announcing the decision. “Fiscal measures must continue to sustain the economy.”

The Covid-19 pandemic has devastated two of Thailand’s main growth drivers, tourism and trade. The government has responded with a series of stimulus measures, recently approving an additional $1.4 billion expenditure for the first quarter of 2021. A fresh virus outbreak over the weekend has added a new risk to the fragile recovery.

graphical user interface, chart: Strong baht poses risk to exports and economic recovery

© Bloomberg
Strong baht poses risk to exports and economic recovery

Strength in the baht currency, which has rallied more than 9% from this year’s low in April, has emerged as a key concern as the government seeks to support exports. The baht was largely unchanged after the decision, up 0.1% to 30.195 per dollar as of 2:19 p.m. in Bangkok.

Seeking to stem baht gains, the central bank has issued a variety of measures to boost capital outflows, and its dollar purchases pushed foreign reserves to a record $255.8 billion in the week ended Dec. 11. Thailand recently was added to a U.S. Treasury Department monitoring list over its foreign-exchange intervention. The bank said Wednesday it may need to consider more measures to rein in the currency.

What Bloomberg Economics Says…

“Though the outlook remains fragile and highly uncertain, we still believe the BOT has reached the end of its rate cut cycle. To support growth in 2021 and 2022, we expect the Thai central bank to lean on other tools, especially measures to stem baht gains against key trading partners.”

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— Tamara Mast Henderson, Asean economist

The central bank on Wednesday revised up its growth forecast for 2020 — now predicting a 6.6% contraction compared with a previous projection of a 7.8% decline — on an improvement in exports and private consumption. It cut next year’s forecast to 3.2% growth, from 3.6% previously.

“The economic forecast next year has high risks, depending on the Covid-19 outbreak and vaccine,” Bank of Thailand Assistant Governor Titanun Mallilkamas said. “We have some policy space left and we’ll use it at the appropriate time with the most efficiency. We didn’t use it this time, but we will assess the situation next time.”

Consistent Message

Krystal Tan, an economist at Australia & New Zealand Banking Group Ltd., said the bank’s message Wednesday was similar to what it said at its November meeting.

“We note however that the latest numbers assume a limited and short-term impact from the virus outbreak, so if the outbreak escalates, the Bank of Thailand could come under more pressure to act,” she said.

Other key points from Wednesday’s announcement:

The bank sees GDP growing 4.8% in 2022Exports are expected to decline 7.4% this year before growing 5.7% in 2021After closing its borders for much of this year, the central bank expects Thailand to welcome 5.5 million tourists in 2021 — down from an estimate of 9 million as recently as September — and 23 million in 2022. That’s well below the 40 million figure from 2019, howeverTitanun said the bank assumes 20% of Thailand’s population will have been vaccinated by the end of 2021 and about 70% by the end of 2022The bank maintained its inflation forecast at -0.9% for this year and +1% for next yearThe bank expects to see a current-account surplus of $16.2 billion in 2020 and $11.6 billion in 2021

(Updates with Bloomberg Economics quote, two bullet points at end.)

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