Thailand Faces Pressure to Cut Rates Again, Analysts Say

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Thailand’s central bank faces pressure to deliver more interest-rate cuts to protect the economy with analysts highlighting a lack of fiscal stimulus due to budget delays.

Bank of Thailand trimmed its policy rate to an all-time low of 1% from 1.25%, as predicted by 14 of 29 economists surveyed by Bloomberg. That was the third cut in the last five meetings.

The baht extended its loss to as much as 0.9% against the dollar after the decision; it recovered and traded little changed at 30.963 versus the U.S. currency.

Here’s what analysts say about the decision:

Prakash Sakpal (Economist at ING Groep NV in Singapore):

  • “Probably one more rate cut wouldn’t hurt because there is absolutely no inflation in Thailand. We have already seen oil prices tumbling by 20% since January because of the virus going around the market. There’s not much demand-side inflation pressure in Thailand”
  • There is not much scope for fiscal stimulus as the budget hasn’t even been passed
  • “All the burden is on Bank of Thailand”
  • Sakpal correctly predicted a rate cut today and expects one more reduction in the second quarter
  • He lowered his end-2020 forecast for the Thai baht last week to 32.50/USD from 30.5 due to the impact of the coronavirus on tourism receipts and projected rate cuts

Charnon Boonnuch, Euben Paracuelles (Economists at Nomura Holdings Inc. in Singapore):

  • The central bank has space to cut again this year due to growing downside risks to economic growth, according to note
  • In addition, the central bank only projects inflation to return to within target range of 1%-3% in the second half of 2021, which would give scope for more easing

Gareth Leather (Senior Asia economist at Capital Economics Ltd. in London):

  • Even before the outbreak of coronavirus, the nation’s economy was in a poor condition, while comments from the BOT suggest the main factor behind today’s decision was the poor outlook for the economy, according to note
  • The onus would normally fall on fiscal policy to provide more support to the economy as the interest rates are so low and the central bank is close to the limits of what can be done through conventional monetary easing
  • However, the BOT may be required to do more of “the heavy lifting” because of the budget delay

Radhika Rao (Economist at DBS Group Holdings Ltd. in Singapore):

  • “As markets had begun to price in easing risks, the Bank of Thailand opted to take a preemptive approach to cut the benchmark rate. Growth risks from the virus-related concerns coupled with a delay in the passage of the budget and drought also magnify downside risks to growth”
  • While DBS does not see a further rate reduction, markets are likely to still price in more cuts

Toru Nishihama (Emerging-market economist at Dai-ichi Life Research Institute Inc. in Tokyo):

  • The rate cut may be the only tool to use at this point as the government cut its growth forecast and amid a delay in the nation’s budget. However, this would mean there’s no more bullets left for BOT
  • “The direct impact on the economy from the rate cut as well as benefit from the weaker baht from the rate reduction will be questionable as the external demand may remain weak and the spread of coronavirus will keep tourism sector sluggish at this point”
  • Hard to imagine there will be further rate cut by the BOT from here

©2020 Bloomberg L.P.

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