Bank of Thailand Sees More Room to Ease After Surprise Rate Cut

(Bloomberg) --

The Bank of Thailand unexpectedly cut its benchmark interest rate Wednesday for the first time in more than four years to boost the economy, and said it sees more room to ease as global risks surge.

The Monetary Policy Committee voted five to two to cut its key rate by a quarter-percentage point to 1.5%, the central bank said in a statement. Just two of the 29 economists in a Bloomberg survey expected the cut, while the rest forecast no change.

The central bank earlier had resisted rate cuts, voicing concern about consumer debt and risks to financial stability. However, the economic outlook has deteriorated sharply in recent months amid escalating U.S.-China trade tensions, a worsening drought and a surging currency, which is hurting exports and tourism. The baht has gained about 8% against the dollar in the past year, the best performer in Asia.

“Sluggish exports and domestic consumption will make it very tough for the Thai economy this year,” said Prapas Tonpibulsak, chief investment officer at Talis Asset Management Co. in Bangkok. “We expect more cuts by the central bank through 2020 because it must keep easing monetary policy to make it more effective.”

The baht was trading down 0.1% at 3:29 p.m. in Bangkok. The benchmark SET index gained as much as 0.7%, its biggest advance in more than two weeks.

What Bloomberg’s Economists Say

The Bank of Thailand’s rate cut on Wednesday should help slow appreciation pressures on the baht. The central bank, though, sounds wary that more work might need to be done. Indeed, we expect more measures to be rolled out, barring a stabilization in the baht against trading partner currencies, especially the yuan.

Click here to read the full report.

-- Tamara Mast Henderson, Asean economist

Central banks across Asia are easing policy to boost growth and keep pace with the U.S. Federal Reserve, which cut its benchmark rate by 25 basis points last week. New Zealand and India cut interest rates earlier Wednesday -- in both cases by more than forecast -- while the Philippine central bank is expected to cut its key rate Thursday after inflation reached a two-year low in July.

In its decision, the Bank of Thailand noted the economy was expected to slow and inflation could come in below target. The currency’s impact on the economy could be heightened amid global trade tensions, the bank said, adding that it would evaluate whether more steps were needed to restrain the baht.

Sunthorn Thongthip, a strategist at Kasikornbank Pcl, said sectors that will benefit most from Wednesday’s cut include the property market, infrastructure funds, utilities and smaller banks, while big banks could be negatively impacted.

“The depreciation might not be enough to really improve the outlook for exports,” he said.

Thailand’s new government, which took office in July, wants fiscal and monetary policy to be synchronized to protect the economy against trade tensions.

“This should stem some of the appreciation pressure, which the central bank was trying to do with other measures that proved to be ineffective,” said Prakash Sakpal, an economist in Singapore at ING Groep NV, who expects another quarter-point cut this year. “It’s not just required for arresting the currency appreciation but also for greater policy accommodation, given that there’s no clarity yet on fiscal stimulus.”

Frances Cheung, head of Asia macro strategy at Westpac Banking Corp. in Singapore, said Thailand’s real policy rate remains relatively low. The central bank “probably would take time to gauge the transmission first before considering the next move,” she said.

--With assistance from Tomoko Sato, Chester Yung, Lilian Karunungan, Anuchit Nguyen, Siraphob Thanthong-Knight, Michelle Jamrisko and Margo Towie.

To contact the reporter on this story: Suttinee Yuvejwattana in Bangkok at suttinee1@bloomberg.net

To contact the editors responsible for this story: Sunil Jagtiani at sjagtiani@bloomberg.net, Michael S. Arnold, Nasreen Seria

©2019 Bloomberg L.P.