Thailand to maintain rate as Covid slows down ease: A decision guide


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The Bank of Thailand will likely keep its benchmark interest rate unchanged at an all time high to assess whether recent measures by the government to ease restrictions on viruses and open more cities are helping the economy.

Nineteen of 22 economists polled by Bloomberg expect the central bank to keep its key rate at 0.5% on Wednesday for an 11th consecutive meeting, while the rest forecast a 25 basis point cut. The Monetary Policy Committee may also revise last month’s forecast for economic growth of 0.7% this year and 3.7% in 2022.

Prime Minister Prayuth Chan-Ocha on Monday announced a series of easing measures as part of the government’s “living with Covid” strategy to revive the economy. The moves come as the country ramps up immunizations, with up to 1 million doses per day administered over the past week.

“Things are improving a bit with the increase in vaccinations and the drop in new infections, although uncertainty remains high for the future,” said Nattaporn Triratanasirikul, economist at Kasikornbank Pcl’s research unit. “The central bank will likely remain firm this year and preserve its limited policy space in the event of an unexpected slowdown. Signs of Federal Reserve tightening will also increase the cost to Thailand if we decide to go against the grain and cut rates further. “

Here’s what to look for in Wednesday’s decision:

Economic perspective

Despite positive trends such as easing restrictions and increasing vaccinations, a number of economists believe the Thai economy remains in the doldrums with weak local demand. Exports and manufacturing, which were key economic backers at the start of the pandemic, were affected in August and September by the spread of the virus in factories, virtual lockdowns and semiconductor shortages.

Thailand’s leading economic planning body cut its gross domestic product forecast last month to 0.7% -1.2% growth, after the finance ministry cut its forecast to 1.3% in July . On Tuesday, the World Bank lowered its forecast for Thai GDP growth to 1% this year, the lowest in Southeast Asia except for post-coup Myanmar.

The central bank will likely maintain its accommodative stance, with at least one dissenting vote expected after two of six policymakers present last month voted for a 25 basis point rate cut, the committee’s first shared decision since May 2020.

What Bloomberg Economics Says …

“It’s only a matter of time before the Bank of Thailand steps up its support for the economy, in our opinion. The only question is how. Some board members have changed in favor of lower rates. But the case for quantitative easing looks stronger – this is a more targeted tool that could focus on longer-term yields, which have started to rise while the start of the curve remains well. anchor. “

– Tamara Mast Henderson, Asean economist

To read the full note, click here

Joint efforts

Finance Minister Arkhom Termpittayapaisith said on Wednesday that monetary policy should remain accommodative and in line with fiscal policy. Policies must be “off the book” in the current situation, he told a virtual conference, adding that the government would unveil more measures to boost local consumption and help small businesses.

The minutes of the August meeting show that the Monetary Policy Committee believes that the government’s fiscal measures would be more effective in stimulating the economy than a further cut in the key rate.

Governor Sethaput Suthiwartnarueput said on Monday that the central bank was ready to issue new measures or adjust current measures to help those affected by the pandemic. Earlier this month, the central bank revised the criteria for its low-interest loans, as well as the incentives for commercial banks to support debt restructuring.

Last week, the government decided to lift the public debt ceiling to allow for increased borrowing and spending to support the recovery. Stimulus measures to boost local consumption and domestic tourism are expected to resume from October, assuming the outbreak subsides.

The weakness of the baht

The baht has weakened more than 11% against the dollar since the start of the year, the worst performance among major Asian currencies tracked by Bloomberg. The central bank and government have tolerated the baht’s move this year, as the weaker currency favors exports. Shipments rose 8.9% in August and 15.3% in the first eighth months of the year.

According to last month’s MPC minutes, the baht has shown a more volatile movement and may depreciate more than its regional counterparts due to domestic factors. The committee said it would closely monitor developments in financial markets to keep the baht stable and ensure that the exchange rate does not hamper businesses.

(Updates with Minister of Finance comments in eighth paragraph.)

© 2021 Bloomberg LP


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