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Thailand Monetary Policy May 2021

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

At its 5 May meeting, the Monetary Policy Committee of the Bank of Thailand (BoT) held the policy rate at the record low of 0.50% for the eighth 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 renewed impact of the pandemic on the economy, highlighting the negative effect that the third wave of the virus will have on growth this year. Adopting a more downbeat tone compared with its March statement, the Bank commented that a slower-than-expected reopening of the country would delay the much-needed return to pre-pandemic tourism figures. Amid such a muted outlook, 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 once again lowered its growth forecast for the economy in 2021, having also downgraded it in its March report. The BoT offered three different scenarios based on the speed and effectiveness of the vaccine rollout, with growth ranging from 1.0–2.0% in 2021 (March estimate: +3.0% year-on-year) and between 1.1–4.7% in 2022 (March estimate: +4.7% yoy). Moreover, it highlighted risks to the outlook stemming from the third wave of the virus and potential delays in the procurement of vaccines. 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, 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.”

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 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 2H21, a 25 bps rate cut could materialise then.”

The next monetary policy meeting is scheduled for 23 June.

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