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Thailand Monetary Policy June 2021

Thailand: Central Bank holds rates at June meeting; further downgrades growth outlook

At its 23 June meeting, the Monetary Policy Committee of the Bank of Thailand (BoT) held the policy rate at the record low of 0.50% for the ninth consecutive meeting. The decision was unanimous and was widely expected by market analysts.

The Bank decided that its accommodative monetary policy stance was still warranted amid the ongoing impact of the pandemic on the economy, highlighting the negative effect that the third wave of the virus will have on growth this year. Echoing the downbeat tone from its May statement, the Bank commented that a fragile labor market amid delays in the much-needed return to pre-pandemic tourism figures would weigh on the economy going forward. Amid such a muted outlook, the BoT maintained its wait-and-see approach in order to continue supporting the economy.

In its communiqué, the Bank provided downgraded growth forecasts for the economy in 2021, having previously lowered its estimates in its March report. The BoT now sees growth at 1.8% in 2021 (March estimate: +3.0% year-on-year) and 3.9% in 2022 (March estimate: +4.7% yoy), with lower tourist figures and suppressed domestic demand driving the downgraded estimates. Meanwhile, the Bank kept its forward guidance relatively unchanged, continuing to emphasize supporting the economic recovery and indicating that it would “stand ready to use additional appropriate monetary policy tools if necessary”.

Regarding the outlook, most panelists see the Bank holding the policy rate at 0.50% for the rest of the year, including analysts at Goldman Sachs, who commented:

“Going forward, as activity recovers slowly, with the bulk of “catch up” growth on rebounding tourism only likely in 2022 as border controls loosen later this year, we expect the Bank of Thailand to be one of the slowest central banks to hike policy rates, only beginning to tighten policy in early 2023.”

Barnabas Gan at United Overseas Bank concurs, although he sees scope for further cuts ahead if necessary:

“We continue to observe that policy space remains very limited, while fiscal policies will likely do the heavy lifting in supporting economic growth. In all, we keep our call for the BoT to leave its benchmark rate unchanged at 0.50% for the whole of 2021. Still, Thailand’s economic growth is likely to be uneven, amid pronounced downside risks should Covid-19 worsen. Should macroeconomic fundamentals stay unexpectedly subdued into H2 2021, a 25 basis-point rate cut could materialise then.”

The next monetary policy meeting is scheduled for 4 August.

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