Coronavirus Is Complicating Thailand’s Central Bank Rate Decision

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The spread of the coronavirus adds one more complicating factor to a tough decision for the Bank of Thailand as it mulls whether to cut the benchmark interest rate to a fresh record low.

Economists in a Bloomberg survey were split ahead of the announcement, with 15 of 29 expecting the central bank to keep the rate on hold at 1.25%, and the remainder expecting a 25-basis-point reduction.

The virus outbreak, combined with a string of negative domestic factors, raises the probability that the central bank will cut borrowing costs sooner rather than later. It lowered rates twice last year and has been proceeding cautiously since then amid worries about excess liquidity and debt, and in the interest of keeping some policy space in case things turn considerably worse.

Coronavirus Is Complicating Thailand’s Central Bank Rate Decision

Here’s what to watch in the Bank of Thailand’s decision Wednesday:

Growth Outlook

The coronavirus impact is of particular concern to Thailand’s tourism industry, which makes up about 21% of the economy and has lost considerable business with the decline of travelers from China, its biggest customer base.

Coronavirus Is Complicating Thailand’s Central Bank Rate Decision

Chinese visitors spent almost $18 billion in Thailand last year, more than a quarter of all foreign-tourism receipts. Officials estimate damage to the tourism sector of 95 billion baht ($3.07 billion) through April as the virus keeps Chinese visitors away.

Southeast Asia’s second-largest economy was already contending with the worst drought in four decades, a prolonged delay in the 3.2-trillion-baht annual budget, and shrinking exports. The central bank last week signaled it might cut its 2020 economic growth forecast, currently at 2.8%.

What Our Economists Say

“Another rate cut cannot be ruled out, but at this juncture easing is less likely. For one, the virus impact will be temporary, albeit intense, and the government appears to be putting together measures to cushion the blow.”

--Tamara Henderson, Asean economist

Read the full report here.


Even after policy makers lowered the target inflation rate in December, consumer price inflation has lingered below the 1%-3% band, finishing last year at 0.87%. Ahead of the January reading due Thursday, analysts see CPI staying below 1% for an eighth straight month.

The weak inflation readings, combined with a low nominal interest rate, have meant Thailand’s real borrowing costs are still better than most regional peers. Ahead of the decision, Thailand had a 0.38% real interest rate, while many economies across Asia-Pacific had real interest rates below zero.


Excessive strength in the baht has driven monetary policy decisions over the past year, but the currency’s tumble in January might be seen as an over-correction amid fears that the coronavirus would push it lower. The baht’s decline at the start of 2020 was its biggest monthly dive against the U.S. dollar in two decades.

A moderate and near-term slip in the baht might do the economy more good than harm, with cheaper prices buoying Thai exporters, including in the food industry.

©2020 Bloomberg L.P.

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