Thailand Keeps Rate at Record Low, Cuts GDP Outlook With Tourism Stalled

The Bank of Thailand kept its benchmark interest rate unchanged at an all-time low and cut its growth forecast as it lets fiscal measures take the lead in reviving the economy from its sharpest fall in more than two decades.

The central bank held the policy rate Wednesday at 0.5% in a unanimous decision, after cutting by a total of 75 basis points last year. All 25 economists in a Bloomberg survey predicted the hold.

Monetary policy must stay accommodative while “fiscal measures must continue to sustain the economy,” the central bank said in a statement. It added that it would “monitor the adequacy of the government measures and various risks,” and is “ready to use additional appropriate monetary policy tools if necessary.”

Many economists expect the Bank of Thailand to stand pat throughout the year because of its limited remaining policy space, letting fiscal policy do the heavy lifting in reviving the economy from its deepest contraction since 1998. The central bank on Wednesday cut its forecast for gross domestic product growth this year to 3%, from 3.2% previously, as the key tourism industry remains mothballed.

Thailand Keeps Rate at Record Low, Cuts GDP Outlook With Tourism Stalled

“In addition to the weak economy, the other main concerns for the central bank are the strong currency and persistent deflation,” Gareth Leather, senior Asia economist at Capital Economics, wrote in a note after the decision. “Both of these point in the direction of interest rates remaining low for the foreseeable future.”

The decision comes a day after the government approved steps to help businesses affected by the outbreak, including 250 billion baht ($8.1 billion) of soft loans and 100 billion baht for a program allowing cash-starved companies to park their assets with lenders in exchange for credit.

Weaker Baht

The baht was down almost 0.3% against the dollar after the decision, heading for its lowest close since early November, while the benchmark stock index was up 0.2%. The currency, which rose 5.8% against the dollar in the final three months of 2020, is down 3.5% so far this year.

“The Bank of Thailand noted that they’ll monitor the Thai baht closely, and we think they’re likely to be comfortable with recent weakness as long as it does not become disorderly,” said Mitul Kotecha, chief emerging markets Asia & Europe strategist at TD Securities.

What Bloomberg Economics Says...

“With still ‘high’ downside risks to an already soft growth outlook for 2021 and 2022, the door appears open for further support from the central bank, in our view. Even so, we still expect the BOT to lean on other tools to support growth if needed, before considering further depletion of its limited conventional policy space.”

-- Tamara Mast Henderson, Asean economist

High oil prices and low tourist arrivals should mean a narrower current-account surplus, relieving some pressure on the baht, Assistant Governor Titanun Mallikamas told reporters in Bangkok.

“A strong dollar from U.S. stimulus also helps reduce pressure on the baht,” Titanun said. “But we can’t be complacent. We continue to monitor closely and try to fix the structural problem by creating an FX ecosystem.”

Other points from the briefing:

  • The central bank raised its forecast for headline inflation this year to 1.2%, while keeping its core inflation estimate at 0.3%
  • Export forecast raised to 10% growth this year, from 5.7% in December
  • GDP is expected to grow 4.7% in 2022, down from 4.8% previously
  • Risks to the economy speed of the vaccine rollout, pace of tourism revival and continuity of fiscal support
  • The central bank lowered its estimate for tourist arrivals this year to 3 million -- from December’s estimate of 5.5 million -- and 21.5 million in 2022, from 23 million. In 2019, before the pandemic, Thailand welcomed 40 million visitors
  • The bank cut its estimate for the 2021 current-account surplus to $1.2 billion, from $11.6 billion forecast in December

©2021 Bloomberg L.P.

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