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Thailand Monetary Policy June 2020

Thailand: Central Bank stands pat in June

At its 24 June meeting, the Monetary Policy Committee of the Bank of Thailand (BoT) left the policy rate at 0.50%, a record low, after having cut the rate by 25 basis points in its previous meeting in May. The decision was unanimous and in line with analysts’ expectations.

The Bank deemed that maintaining accommodative monetary policy remains vital for the economy to recover after the health crisis subsides and to ensure the return of inflation to the target level. The significant fall in demand prompted consumer prices to fall 3.4% on annual basis in May (April: -3.0% year-on-year), marking the sharpest decline in over a decade. As a result of the deterioration in economic activity seen since its last meeting, the Bank now estimates GDP will contract more than previously expected, which in turn should keep inflation below target for a more prolonged period of time, returning to target until 2021.

Meanwhile, commercial lending rates and short-term government bond yields have fallen thanks to the marked easing in policy and additional liquidity measures. That said, the acceleration in overall lending reflects upbeat borrowing from large corporate players, as lending to small- and medium-sized enterprises and consumers has lost steam since the Bank’s previous meeting.

Looking ahead, the Bank maintained a dovish tone indicating that it stands “ready to use additional appropriate monetary policy tools if necessary”. The financial system has stabilized thanks to ample liquidity, which should help lay the groundwork for an economic recovery once the pandemic subsides. Nevertheless, amplifying credit access to SMEs and consumers remains vital to support employment and facilitate the recovery.

The next monetary policy meeting is scheduled for 5 August.

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