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Thailand Monetary Policy August 2021

Thailand: Central Bank takes dovish turn in August meeting amid dissenting votes

At its 4 August meeting, the Monetary Policy Committee (MPC) of the Bank of Thailand (BoT) held the policy rate at the record low of 0.50% for the ninth consecutive meeting. While the hold was widely expected by market analysts, the decision was not unanimous as in previous meetings, but rather two of the seven MPC members voted for a 25 basis-point cut, while one further member abstained.

The Bank decided that its accommodative monetary policy stance was still warranted amid the worsening impact of the pandemic on the economy, highlighting the negative effect that the third wave of the virus will have on growth this year. Echoing the downbeat tone from its June statement, the Bank commented that a fragile labor market amid delays in the much-needed return to pre-pandemic tourism figures would weigh on the economy going forward. Amid such a muted outlook, the BoT maintained its wait-and-see approach in order to continue supporting the economy.

In its communiqué, the Bank once again downgraded its GDP growth forecasts, having previously lowered estimates in its June report. The BoT now sees growth at 0.7% in 2021 (June estimate: +1.8% year-on-year) and 3.7% in 2022 (June estimate: +3.9% yoy). 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, Charnon Boonnuch and Euben Paracuelles, economists at Nomura, now see a further cut this year, stating:

“We believe the BoT will cut its policy rate again by 25 basis points, taking the policy rate to a new record low of 0.25%. We think the BoT will likely deliver the cut at its next MPC meeting on 29 September, at which point the significant impact of the Covid-19 outbreak on the economy will likely be evident. […] We think the two dissenting votes today is a strong signal of an impending rate cut at the next MPC meeting based on historical MPC decisions.”

Krystal Tan and Sanjay Mathur, economists at ANZ, generally concur, although see potential for rates to stay on hold this year, commenting:

“We acknowledge that a further deterioration in the virus situation will raise pressure on the BoT to act, including through its policy rate. Overall, we are keeping our forecast for the policy rate to stay at 0.50% through this year and next, but if the downside risks to growth continue to grow (i.e. an extension of current lockdown measures beyond August), we think that could pave the way for a 25 basis-point rate cut possibly as soon as the BoT’s next meeting in September.”

The next monetary policy meeting is scheduled for 29 September.

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