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Thailand Monetary Policy September 2019

Thailand: Bank of Thailand holds fire in September

At its 25 September meeting, the Monetary Policy Committee of the Bank of Thailand unanimously opted to leave the policy rate unchanged at 1.50%. While the decision was in line with market expectations, the Bank did slash its economic growth and inflation forecasts.

The decision to stand pat was driven by the belief that the current stance will buttress the economy and boost inflation towards the target of 1.0%–4.0%. However, the Bank opened its press release by stating that it expects the economy to grow at a softer rate than previously expected and that inflation will likely be below the lower bound of the target range. The Bank cut its 2019 economic growth forecast from 3.3% to 2.8% and its 2020 economic growth forecast from 3.7% to 3.3%. Meanwhile, the Bank forecasts inflation to average 0.8% in 2019, which is down from the prior forecast of 1.0%. Economic growth is expected to ease due to dropping exports amid intensifying trade tensions. A weaker external sector is seen spilling over into the domestic economy, with declines in household income and employment as the manufacturing sector is export-oriented. Additionally, still high levels of household debt and impacts of natural disasters could further limit private consumption.

The Bank struck a dovish tone in its press release, stating that it would continue to “closely monitor developments of economic growth, inflation and financial stability, together with associated risks, especially impacts from trade tensions” to determine monetary policy down the road. The Bank also reiterated that the economy will “continue to face structural problems”, which could “affect competitiveness and [the] economic growth outlook”.

The next monetary policy meeting is scheduled for 6 November.

Commenting on the decision, Prakash Sakpal, Asia economist at ING, stated that “the Thai authorities are lagging behind their Asian peers in providing policy support to the economy. […] A BoT rate cut today would have narrowed the gap with other regional economies somewhat. On the fiscal side, it’s not clear how quickly the $10 billion (2% of GDP) fiscal stimulus that the government announced in August will get off the ground, which, in turn, means that monetary policy will have to do even more heavy-lifting.”

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