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Thailand Monetary Policy March 2021

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

At its 24 March meeting, the Monetary Policy Committee of the Bank of Thailand (BoT) kept the policy rate at the record low of 0.50% for the seventh 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 continued impact of the pandemic on the economy. Adopting a more negative tone compared with its February statement, the Bank highlighted lower tourism figures and the recent wave of Covid-19 infections as reasons to remain cautious, while it also removed previous statements describing the economic recovery as being “on track”. Amid such uncertainty, the BoT maintained its wait-and-see approach in order to “preserve the limited policy space to act at the appropriate and most effective” time.

In its communiqué, the Bank lowered its growth forecast for the economy in 2021, downgrading it to 3.0% from the 3.2% estimated in the December 2020 report. Moreover, the projection for 2022 was reduced slightly to 4.7% from 4.8% previously, with the Bank highlighting significant risks including “the efficacy and distribution of Covid-19 vaccination, the recovery in foreign tourist figures, and the continuity of fiscal support”.

Meanwhile, the Bank kept its forward guidance relatively unchanged, indicating that it would “stand ready to use additional appropriate monetary policy tools if necessary”.

Regarding the outlook, analysts at Goldman Sachs see the Bank continuing its wait-and-see approach, commenting:

“We expect Bank of Thailand to be one of the slowest central banks to hike policy rates, only beginning to tighten policy in early 2023. In the event that fiscal policy under-delivers and/or the growth trajectory undershoots BoT’s expectations significantly this year (not our base-case), BoT is likely to continue to lean more heavily towards targeted credit support schemes rather than further rate cuts given the diminishing effectiveness of further policy rate cuts at the effective lower bound.”

Analysts at Nomura concur, although they see scope for further cuts ahead if necessary:

“We think that the BoT has not closed the door to more easing, as it retained its dovish policy guidance in the policy statement. […] However, we believe that the bar to more easing is high and that other targeted credit and fiscal measures are more preferred to rate cuts, amid the BoT’s emphasis on preserving its limited policy space.”

The next monetary policy meeting is scheduled for 5 May.

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