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Thailand Monetary Policy December 2020

Thailand: Central Bank keeps rate at record low for fifth meeting running in December

At its 23 December meeting, the Monetary Policy Committee of the Bank of Thailand (BoT) held the policy rate at the record low of 0.50% for the fifth consecutive meeting, having cut it by 75 basis points since the beginning of 2020. The decision was unanimous and was widely expected by market analysts.

The Bank decided that its accommodative monetary policy stance was still necessary, despite a continued recovery in activity in recent months. The Committee commented that “the economic recovery remained highly uncertain” and “would in the short term depend on the situation of the new wave of Covid-19 outbreak and corresponding containment measures”, and as such it maintained its wait-and-see approach, with a relative easing of deflationary pressures through August–December giving it further space to do so.

In its communiqué, the Bank upgraded its 2020 GDP forecast, raising it to a 6.6% contraction from a 7.8% drop previously. However, it downgraded its 2021 growth projection to 3.2% from 3.6%, with uncertainty regarding the recovery in foreign tourist figures a key risk to the outlook. Meanwhile, it held its inflation forecasts steady at minus 0.9% in 2020 and plus 1.0% in 2021.

The Bank also maintained a slight dovish tone, making reference to the new domestic outbreak as a key risk factor in deliberating monetary policy going forward, and indicating that it would “stand ready to use additional appropriate monetary policy tools if necessary”.

Consequently, Charnon Boonnuch and Euben Paracuelles, analysts at Nomura, envisage a rate cut early this year, noting:

“We maintain our forecast that the BoT will cut its policy rate by 50bp to 0% in Q1 2021, reflecting the weak economic recovery, with rising downside risks as well as CPI inflation undershooting the BoT’s target for a third year in a row next year.”

However, analysts at Goldman Sachs are less certain of further rate cuts, commenting:

“Going forward, we continue to expect the BoT to keep the policy rate unchanged at 0.5%. However, should fiscal policy under-deliver, the impact from the renewed virus restrictions be larger and/or vaccine deployment and border reopening take longer than we expect, the BoT could shift towards using other unconventional easing tools, including forward guidance, sovereign QE and/or yield curve control.”

The first monetary policy meeting of 2021 is scheduled for 3 February.

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