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Thailand Monetary Policy February 2021

Thailand: Central Bank leaves rates unchanged at February meeting

At its 3 February meeting, the Monetary Policy Committee of the Bank of Thailand (BoT) maintained the policy rate at the record low of 0.50% for the sixth 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 the recovery in activity remaining on track in recent months. The Committee commented that “the impact of the recent outbreak on the Thai economy would be less severe than last year due to less strict containment measures” but that in the short term “the recovery prospects remained highly uncertain”. Longer term, the BoT elucidated that the country’s economic recovery would depend on four key drivers: the recovery in foreign tourist figures, the scale and impact of Covid-19 vaccination plans, continued fiscal support; and the condition of the labor market. Amid such uncertainty, the Bank maintained its wait-and-see approach in order to “preserve the limited policy space to act at the appropriate and most effective timing”.

The Bank also kept its forward guidance relatively unchanged, making reference to the 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”.

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

Barnabas Gan, economist at United Overseas Bank, concurs, although sees uncertainty in the outlook:

“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 24 March.

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