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Thailand Monetary Policy February 2020

Thailand: Bank of Thailand lowers policy rate as coronavirus outbreak clouds the outlook

On 5 February, the Monetary Policy Committee of the Bank of Thailand (BoT) voted unanimously to cut the policy rate by 25 basis points, bringing the rate down to 1.00% from 1.25%.

The decision was driven by a notable downgrade in the 2020 economic outlook and below-target inflation expectations. The Central Bank stated that it expects the Thai economy to expand below potential this year due to the outbreak of the coronavirus, which could disrupt regional supply chains; delayed implementation of the government budget; and drought. By extension, the Bank expected inflation to remain below the 1.0%–4.0% target range (December: 0.9%) this year and next on the heels of moderating core inflation due to weak economic activity, and lower energy prices owing to dropping oil demand in the wake of the coronavirus epidemic. In addition, the BoT stated that “financial stability became more vulnerable due to the prospect of economic slowdown.” Given the above, the Bank felt that a “more accommodative monetary policy stance would alleviate the negative impacts”.

In its accompanying press communiqué, the Bank sounded somewhat more dovish compared to its previous meeting. While reiterating its commitment to monitor developments of economic growth, inflation and financial stability, the Bank added that it would also pay special attention to associated risks such as “the coronavirus outbreak, the delayed enactment of the Annual Budget Expenditure Act, and the drought in deliberating monetary policy going forward.”

The next monetary policy meeting is scheduled for 25 March 2020.

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