Thailand Holds Rate on Rebound Optimism as Restrictions Ease
(Bloomberg) -- Thailand’s central bank held its key interest rate unchanged amid optimism that an economic rebound will hold, as Southeast Asia’s second largest economy loosens growth-stifling restrictions and virus cases ease.
The Bank of Thailand voted unanimously Wednesday to hold the one-day repurchase rate at a record-low 0.5% for an 11th straight meeting, as predicted by 19 of 22 economists in a Bloomberg survey. The other three expected a 25-basis point reduction, after two members of the rate-setting committee had voted to cut at the August meeting.
The ramp-up of vaccinations and faster-than-expected easing of restrictions should support the economy the rest of this year and next, Assistant Governor Titanun Mallikamas said in a Facebook Live briefing. The economy bottomed in the third quarter and will start to rebound in the final three months of 2021, though uncertainty remains high, he said.
Thailand is joining other Southeast Asian countries in slowly easing pandemic restrictions as it balances virus-containment measures with steps to revive the economy. The government has promoted a “living with Covid-19” strategy and ramped up its vaccination campaign, followed by a decision Monday to cut the quarantine period, shorten the nightly curfew and allow more businesses to reopen.
Thailand reported 9,489 new Covid-19 cases Tuesday, its lowest tally since July 15. About 33% of the population has been vaccinated, up from 18% a month ago.
The benchmark SET Index of stocks rose as much as 0.4% after the rate announcement, while the baht was little changed after earlier hitting its lowest level in more than four years against the U.S. dollar. The yield on 10-year sovereign bonds was little changed at 1.839%.
What Bloomberg Economics Says...
“The surprise was that the decision was unanimous, unlike last month when two policy makers voted for a 25 bps rate cut, which signaled the central bank was moving in the direction of easing...We don’t expect any rate changes this year, but we still would not rule out targeted quantitative easing, with 10-year government yields starting to soar.”
Tamara Mast Henderson, Asean economist
To read the full note, click here
While the central bank maintained last month’s forecast for economic growth of 0.7% this year, its tone Wednesday expressed more optimism. The bank said the economy “would expand close to the projection from the previous meeting,” and raised next year’s outlook to 3.9% growth, from the 3.7% it forecast in August.
The bank said it stood ready to use additional tools if needed, but reiterated that fiscal support would be more effective than cutting the policy rate further. Earlier this month the bank relaxed rules for its low-interest loan program and boosted incentives for banks to encourage debt restructuring.
“The weakness of the economy means interest rates are likely to stay low for some time to come,” Gareth Leather, senior Asia economist at Capital Economics Ltd., wrote in a research note after the decision. “We are taking out the rate cut we originally had penciled in for this year. But the poor state of the economy means rate hikes are a long way off.”
Earlier this month the government raised the public debt-to-GDP ratio to 70% from 60% to allow for higher state borrowing to fight the outbreak. The Cabinet also approved a public debt management plan for the fiscal year starting Oct. 1, which includes 1.34 trillion baht ($39.7 billion) in new borrowing mainly to finance the budget deficit, government investments and virus-related projects.
Finance Minister Arkhom Termpittayapaisith said Wednesday that monetary policy should remain accommodative and in sync with fiscal policy. Policies must be “out of the book” during the current situation, he told a virtual conference, adding the government will unveil more measures to help small businesses and boost local consumption.
“While reopening plans have yet to show clear results, they may have bought time to wait on a rate cut,” said Tim Leelahaphan, an economist at Standard Chartered Bank Plc. “We may reinstate our rate-cut call if the economy worsens significantly from here (not our base case).”
Other points from the briefing:
- Risks to the outlook include measures to contain the pandemic and private-sector confidence
- Inflation is expected to average 1% this year and 1.4% in 2022
- Exports should grow 16.5% this year and 3.7% next year. Imports are expected to rise 23.8% and 4.8%, respectively
- The current account is forecast to show a $15.3 billion deficit this year and a $1 billion surplus in 2022
- The central bank expects Thailand to receive 200,000 foreign tourists this year and 6 million in 2022, unchanged from last month’s estimates
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