Bank of Thailand Makes Surprise Rate Cut on Virus Fears

(Bloomberg) -- The Bank of Thailand cut its benchmark interest rate to a fresh record low in an emergency meeting as the coronavirus outbreak damages the country’s tourism industry and raises the risk of recession.

The central bank lowered the policy rate by 25 basis points to 0.75%, effective March 23, it said in a statement on its website late Friday. The monetary policy committee was scheduled to meet on March 25, and Assistant Governor Chantavarn Sucharitakul said separately that the meeting will still go ahead.

The rate decision was a unanimous one and is the second reduction in as many months, after the bank moved by 25 basis points in February.

The MPC said the virus outbreak in the period ahead would be “more severe” than previously expected, adding it will take some time for the situation to return to normal.

“This would severely affect the Thai economy,” it said in the statement. “Moreover, the outbreak resulted in concerns among global financial markets, affecting liquidity and the functioning of Thai financial markets despite overall stability of the financial system.”

Thailand is the latest central bank in Southeast Asia to ease policy after its Philippine and Indonesian peers cut their benchmark rates by 50 and 25 basis points, respectively, on Thursday, and Malaysia eased banks’ reserve requirements. Elsewhere in the Asia Pacific, the Reserve Bank of Australia cut its benchmark rate to its lower bound and started quantitative easing.

Liquidity

The Thai policy committee said the reduction in borrowing costs will help borrowers impacted by the economic fallout of the virus, and alleviate liquidity strains in the financial markets.

The Bank of Thailand will “ensure sufficient liquidity, as well as the well-functioning and stability of the financial markets,” according to the statement.

Even before cases of Covid-19 began to surge, Thai officials were grappling with shrinking exports, the worst drought in four decades and a delay in implementing the 3.2-trillion-baht ($98.1 billion) annual budget.

Late Thursday, the government advised people to stay home and said foreigners traveling to Thailand must have a health certificate and medical insurance. Schools and universities, as well as many entertainment and recreation venues, closed earlier in the week.

The government approved a package of stimulus measures March 10 that it said will inject about 400 billion baht into the economy, to counter the economic blow from the disease.

©2020 Bloomberg L.P.