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Thailand Monetary Policy August 2020

Thailand: Central Bank holds rates steady in August

At its 5 August meeting, the Monetary Policy Committee of the Bank of Thailand (BoT) decided to hold 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 in line with market expectations.

The Bank decided that a continuation of 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 also commented on the positive impact that existing fiscal and credit measures have had on alleviating the worst effects of the crisis and ensuring liquidity has been sufficient, despite the need for more targeted lending to small- and medium-sized enterprises. As such, the Bank took a wait-and-see approach, with the easing of deflationary pressures in June giving it further space to do so.

Looking ahead, the Bank maintained a mildly dovish tone indicating that it would “stand ready to use additional appropriate monetary policy tools if necessary”, predicting that economic activity would not recover to pre-pandemic levels until at least 2022.

Regarding the outlook, Prakash Sakpal, senior economist at ING, sees no more rate cuts this year, commenting:

“Just recently Assistant Governor Titanun Mallikamas, indicated that they were preserving easing space for a worst-case scenario. That said, we consider the BoT’s rate cut cycle has bottomed. An on-hold policy rate at the current level for a foreseeable future remains our baseline through 2021, at the least.”

Meanwhile, analysts at Nomura see some uncertainty in the outlook, noting:

“We think the bar for the BOT to ease again is high. […] However, we would still not rule out the possibility of more rate cuts this year, as economic uncertainty remains elevated due to the nature of the COVID-19 outbreak. […] We continue to think that the BOT could decide to cut its policy rate again, if there is a second wave of the local COVID-19 outbreak, which could undermine the recovery through the reintroduction of lockdowns, or if external demand deteriorates further.”

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 August meeting was the last for current governor Veerathai Santiprabhob—whose terms comes to an end in September—with the cabinet announcing the selection of Sethaput Suthiwart-Narueput as his replacement. The next monetary policy meeting is scheduled for 23 September.

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