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Thailand Monetary Policy November 2020

Thailand: Central Bank keeps rate at record low for fourth meeting running in November

At its 18 November meeting, the Monetary Policy Committee of the Bank of Thailand (BoT) held the policy rate at the record low of 0.50% for the fourth consecutive meeting, having cut it by 75 basis points since the start of the year. The decision was unanimous and was widely expected by market analysts.

The Bank decided that a continuation of its accommodative monetary policy was necessary, despite stronger-than-expected activity in recent months. The Committee commented that “the economic recovery would remain fragile and highly uncertain” and as such maintained its wait-and-see approach, with a relative easing of deflationary pressures through August–October giving it further space to do so.

Looking ahead, the Bank maintained a slight dovish tone, stating that this month’s hold would act to “preserve the limited policy space in order to act at the appropriate and most effective timing”, 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 further rate cut before the end of 2020, noting:

“We reiterate our forecast that the BoT will cut its policy rate again by 50bp by Q1 2021, with the first 25bp cut likely delivered at the next policy meeting in December, reflecting our cautious view that the protests will be prolonged and will weigh on the already-weak economic outlook.”

However, Barnabas Gan, economist at United Overseas Bank, sees rates remaining unchanged for the rest of this year, commenting:

“The better-than-expected economic performance in 3Q20 amid the need to preserve policy space should dissuade policy-makers from cutting its benchmark rate further. As such, we keep our call for BoT to leave its benchmark rate unchanged at 0.50% for the rest of 2020.”

Meanwhile, on 20 November, the Bank released three key measures to mitigate recent strengthening of the baht, which has appreciated over 8% since early April. The first two—namely allowing residents to freely deposit funds in foreign currency deposit accounts and relaxing regulations regarding foreign currency-denominated securities—aim to increase outflows of the THB, while the third—requiring pre-trade registration for Thai debt securities—aims to temper interest in THB-denominated bonds.

Regarding the measures, Danny Suwanapruti and Andrew Tilton, analysts at Goldman Sachs, commented:

“USD/THB traded slightly lower after the announcement, as the market had pre-positioned for some FX rules to be announced since the MPC meeting. […] Even if a vaccine becomes available in Q1/Q2, we think Thailand’s economy will lag the region, since it remains heavily reliant on tourism, and air travel is likely to lag the recovery compared to other sectors such as manufacturing and services. Moreover, ongoing protests are likely to weigh on foreign investment. As such, although USD/THB may continue to ease in line with the broad USD, we expect the THB to underperform [regional] peers.”

The final monetary policy meeting of 2020 is scheduled for 23 December.

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