Thailand Faces Biggest Economic Contraction Since Asian Crisis
Thailand Holds Rate, With Economy Seen Contracting 5.3%
(Bloomberg) --
The Bank of Thailand left its benchmark interest rate unchanged after an emergency cut last week, while projecting the worst contraction in the economy since the Asian financial crisis more than two decades ago.
The bank slashed its growth forecast for this year, now expecting the economy to shrink 5.3% compared with an earlier estimate of 2.8% expansion. Exports and tourism, the key drivers of Thailand’s economy, have both been hard hit as the coronavirus outbreak spreads around the world.
The policy rate was maintained at a record low 0.75% Wednesday following a 25 basis-point reduction at an unscheduled meeting March 20. Four of the seven monetary policy committee members voted to hold, two called for a cut and one wasn’t able to attend.
“We believe they can cut by another 25 basis points. They could have used all the space they have now,” said Burin Adulwattana, chief economist at Bangkok Bank Pcl. “The economy is on the brink of a recession with huge downside risk, so it’s time to do all they can.”
Bank of Thailand Assistant Governor Titanun Mallikamas said Wednesday that policy makers stand ready to lower rates further if needed and will keep a close watch on markets, including the baht exchange rate. In a statement delivered through the Bank of Thailand’s Facebook page due to social-distancing precautions, he said the economy would recover only next year.
The benchmark SET Index extended gains after the decision, surging 6.3% to 1,099.32 as of 3:32 p.m. in Bangkok. The baht fell 0.3% against the dollar, paring an earlier loss of as much as 0.5%.
What Bloomberg’s Economists Say
Quantitative easing is looking more likely for Thailand’s central bank, in our view. Conventional policy ammunition is running low. The road ahead is long for the recovery of the country’s all-important tourism sector.
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Tamara Mast Henderson, Asean economist
Central bankers around the world are accelerating efforts to support the economy by slashing interest rates and boosting liquidity. With inflation-adjusted interest rates in Thailand near zero and the Bank of Thailand close to what officials see as the effective lower bound of its benchmark rate, policy options are becoming limited.
The sizable cut to the central bank’s GDP forecast “is bold, but may not be unrealistic,” said Frances Cheung, head of Asia macro strategy at Westpac in Singapore. “With such a GDP forecast, the government should be ready to add to the fiscal package.”
Emergency Footing
Thailand’s prime minister has declared a month-long state of emergency starting Thursday, with some borders to be closed and Bangkok already under partial shutdown. Earlier this week the government approved a stimulus package worth about $3.6 billion, including $1.37 billion in cash handouts to some workers.
Also Wednesday, the central bank:
- cut its forecast for 2020 exports to 8.8% contraction, from 0.5% growth expected previously
- lowered its 2020 inflation forecast to -1.0%, from 0.8% previously
- predicted 3.0% GDP growth and headline inflation of 0.3% for 2021
- announced measures to help borrowers such as postponing payments due. The steps cover credit-card debt, revolving loans and mortgages, among other products
Eight of 17 analysts in a Bloomberg survey accurately predicted the central bank’s hold, with the rest expecting a quarter-point cut in the benchmark rate.
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