Thailand central bank keeps key interest rate unchanged
Thailand’s central bank (CB) has kept its key interest rate unchanged at a record low for a fourth straight meeting on Wednesday. The bank said that the coronavirus-hit economy had improved but that the recovery remained fragile as per official data.
A continued ban on foreign tourists, a strong baht and escalating political protests are expected to weigh on the tourism-reliant economy and consumption this year.
The Bank of Thailand’s (BOT) Monetary Policy Commitee ( MPC) voted unanimously to keep the one-day repurchase rate steady at a record low of 0.50%, as expected by all 15 economists in a Reuters poll.
“The Commitee assessed that despite the recent beter-than-expected outurn, the Thai economy would recover slowly and need support from the continued low policy rate,” the MPC said in a statement.
“Nonetheless, the economic recovery would remain fragile and highly uncertain.”
Limited policy room should be preserved in order to act at the most appropriate and effective time, according to the statement.
Southeast Asia’s second-largest economy shrank by less than expected in the third quarter, rebounding from its worst slump in 22 years, as easing coronavirus restrictions boosted domestic demand, while private investment also improved.
The BOT has cut the key rate by 75 basis points this year and provided sot loans and debt relief programmes to support an economy dependent on exports and tourism. The government has planned to borrow 1 trillion baht ($33 billion) to mitigate the coronavirus impact.
With limited policy room let, most analysts expect the BOT to stay on hold throughout 2021.
The BOT reiterated the rapid rise in the baht could affect the economic recovery and said that it would consider additional measures as needed. It has said it has no baht level targets and will intervene only to smooth out any excessive moves in the currency.
The BOT will hold a briefing on the baht situation and measures on Friday, Assistant Governor Titanun Mallikamas told a briefing.
The BOT has said it expects the economy to contract by a record 7.8% this year. It shrank 6.4% in the third quarter from a year ago ater a 12.1% contraction in the April-june period.
Thailand’s baht dipped and shares struggled on Wednesday as the country’s central bank again warned against an overly strong currency and said the economy remained fragile, trailing gains elsewhere in Asia amid a pullback on global stock markets
Thailand’s economy shrank more slowly in the third quarter, with the contraction limited to 6.4% thanks to a recovery in domestic activity ater coronavirus restrictions were eased but an ongoing travel ban has kept most foreign tourists away.
The data released on Monday by the National Economic and Social Development Council (NESDB) showed a marked improvement from the June quarter, when the economy suffered a 12.1% decline, the sharpest fall in over two decades.
On a quarterly basis, the economy expanded a seasonally adjusted 6.5% in the September quarter, the fastest pace in more than eight years, ater a record contraction of 9.9% in the prior quarter.
Economists in a Reuters poll had forecast the economy would shrink 8.6% year-on-year and grow 3.8% quarter-on-quarter.
As a result, the government raised its 2020 outlook for a contraction of 6.0% from a previous forecast 7.3%-7.8% decline. It now expects exports to fall 7.5% this year, rather than drop 10%.
The upgrade came in amid a slump in tourism, tepid global demand, a strong baht and months of domestic political protests.
“The Q3 data was quite a surprise but the economic picture has not changed and we expect a decline until the first quarter,” said Thammarat Kitisiripat, economist of Tisco group.
While Thailand has removed most restrictions as local infections slow, its economy continues to suffer from sot global demand and the absence of foreign tourists. It started last month to let some foreign visitors return.
“A rising trend in the number of COVID-19 cases globally during the Northern Hemisphere winter will subdue the economy for the next two quarters,” said Kobsidthi Silpachai, head of capital markets research of Kasikornbank.
On Monday, the NESDC said it expected 6.7 million foreign tourists to come to Thailand this year - between April and early October there were none - ater last year’s record 39.8 million with their spending accounting for 11.4% of GDP. It predicts only 5 million foreign visitors in 2021. The government has supported the economy with a 1.9 trillion baht ($63 billion) stimulus package, while the central bank has slashed interest rates by 75 basis points this year to a record low of 0.50%.
Ban on foreign tourists, a strong baht and escalating political protests are expected to weigh on the tourism-reliant economy