Thai Central Bank to Hold as Covid Wave Ebbs: Decision Guide

(Bloomberg) -- Thailand’s central bank will likely keep its benchmark interest rate unchanged Wednesday to support a nascent economic recovery as the nation’s biggest Covid outbreak eases.

All 21 economists surveyed by Bloomberg expect the Bank of Thailand to keep the policy rate at a record-low 0.5% for a 12th-straight meeting. In a sign that pandemic restrictions are easing, the central bank will hold an in-person press briefing for the first time in six months.

Rising vaccination rates and loosened mobility curbs have put Southeast Asia’s second-largest economy on the path to recovery, removing the possibility of a second straight annual contraction. Meanwhile, the central bank sees fiscal and financial measures providing more effective economic support than further lowering rates.

“GDP growth will turn positive in the fourth quarter as Thailand adopts a ‘living with Covid’ strategy and starts quarantine-free travel for vaccinated tourists,” said Ju Ye Lee, a Singapore-based economist at Maybank Kim Eng Research. “The surge in inflation amid rising oil prices and the end of subsidies for water and electricity charges also provide less room for further cuts in the policy rate.”

Here’s what to look for in Wednesday’s decision:

Better Shape

The central bank and the Finance Ministry both have said the economy bottomed out in the July-September quarter, when new Covid cases peaked at more than 20,000 a day. Gross domestic product figures for that period will be reported next week by the National Economic & Social Development Council.

Vaccinations have picked up pace in recent months, with 61% of Thailand’s population receiving at least one dose and almost half getting two doses. The government is set to exceed its target of inoculating 70% of residents by the end of the year. New infections dropped to 6,904 on Tuesday, the lowest since early July. 

Prime Minister Prayuth Chan-Ocha’s government last month approved a slew of stimulus measures worth 92 billion baht ($2.8 billion) to reduce the cost of living, boost domestic consumption and support the economy. That’s on top of billions of dollars in fiscal support unveiled earlier in the pandemic to minimize the hit to the economy. The central bank also temporarily suspended home-mortgage lending limits to revive the sluggish property market.

Inflation, Baht 

Inflation accelerated to 2.38% in October, the fastest pace since May, on higher oil and vegetable prices. The government has subsidized diesel and cooking gas prices to lower the burden on the public but the central bank says inflation isn’t worrisome, expected to remain near the lower bound of the 1%-3% target range this year and next.  

The weak baht also pushes up oil costs for Thailand, a net importer. The baht has weakened more than 8.5% against the dollar so far this year, one of the worst performers among major Asian currencies tracked by Bloomberg. Still, baht weakness helps boost the nation’s price competitiveness, favoring exporters. Exports jumped 17.1% in September. 

The central bank said it has intervened to curb currency volatility to ensure that swings in the baht don’t obstruct the recovery. Capital flows are expected to be more volatile, in line with growing global divergences in monetary policy.

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