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Thailand Monetary Policy September 2020

Thailand: Central Bank rate maintained at record low in September

At its 23 September meeting, the Monetary Policy Committee of the Bank of Thailand (BoT) held the policy rate at a record low of 0.50%, having cut the rate 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 to support the gradual recovery of the economy, following an easing of containment measures in the country and improving external dynamics. The Committee commented that “the extra accommodative monetary policy since the beginning of the year as well as the fiscal, financial, and credit measures additionally announced helped alleviate adverse impacts, and would support the economic recovery after the pandemic subsided”. As such, the Bank maintained its wait-and-see approach, with the continued easing of deflationary pressures through May–July giving it further space to do so.

The BoT also provided updated forecasts in its September report, estimating a smaller contraction in 2020 than previously expected. The Bank now sees GDP shrinking 7.8% year-on-year in 2020, up marginally from the 8.1% contraction estimated in June’s update. However, a slow recovery in tourism and the potential for a second wave of the virus caused the Bank to downgrade its 2021 forecast to 3.6% growth (June update: +5.0% yoy). Furthermore, it provided revised estimates for consumer prices, with a 0.9% decrease forecast in 2020 before a 1.0% increase in 2021 (June update: -1.7% in 2020 and +0.9% in 2021).

Looking ahead, the Bank maintained a slight dovish tone, indicating that it would “stand ready to use additional appropriate monetary policy tools if necessary”.

Regarding the outlook, Charnon Boonnuch and Euben Paracuelles, analysts at Nomura, see no further cuts in 2020, noting:

“We reiterate our forecast that the BOT will leave its policy rate unchanged at 0.5% for the remainder of this year, as we think the BOT still wants to preserve its limited policy space amid uncertain COVID-19 developments and rising domestic political risks.”

In contrast, analysts at Goldman Sachs still see another cut on the cards, commenting:

“With growth still expected to contract severely this year, deeply negative headline inflation, and potentially significant consequences for the longer term growth trajectory, we still see another 25bp policy rate cut as being more likely than not by end-2020.”

The September meeting was the last for current governor Veerathai Santiprabhob, with Sethaput Suthiwart-Narueput taking the reins on 1 October. The next monetary policy meeting is scheduled for 18 November.

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