Govt steps in to spur economy
Takes ‘drastic’ moves to curb slowdown
Two key economy-related state agencies have taken drastic measures to curb the impacts from the US-China trade war as the Thai economy slows.
The Finance Ministry is pressing state enterprises to inject 130 billion baht into their investment projects by the end of this year, while the central bank has surprised observers by shaving the policy interest rate by 25 basis points, the first cut in almost four years.
Finance Minister Uttama Savanaya said yesterday the ministry has told the State Enterprise Policy Office (Sepo) to speed up disbursement of an additional 130 billion baht of state enterprise investments to meet targets by the end of this year.
Sepo has also been instructed to work with other agencies to remove any hurdles to investment, Mr Uttama said.
Also, the Bank of Thailand stunned the market yesterday by following the lead of other major central banks with its rate cut effort to boost the economy.
The Monetary Policy Committee voted 5-2 to cut the benchmark rate from 1.75% to 1.5%, matching the previous level before the hike in December last year.
The committee judged the Thai economy would grow more slowly than previously projected because a contraction in exports has been hurting domestic demand.
The cabinet on Tuesday met to discuss the volatility of the global economy. Deputy Prime Minister Somkid Jatusripitak briefed the meeting on three major global issues that could adversely affect Thailand’s economy — the ChinaUS trade war, the protests in Hong Kong which are affecting stock markets, and the depreciation of the yuan.
Mr Somkid said Thailand’s economy is feeling the heat of the intensifying Chinese-US trade war, which is hitting the country’s exports. However, during the past three to four years, investment in state enterprise projects has helped buoy the economy, he said.
Among the state enterprises involved in the investment push are CAT Telecom and Thailand Post. Thailand Post plans to become the logistics hub for the government’s flagship Eastern Economic Corridor scheme by 2019 and also aims to become a fully automated operation by 2022.
Transport Minister Saksayam Chidchob said that Mr Somkid has issued an ultimatum to state enterprises: those that fail to invest will have their unused budget confiscated by the Finance Ministry and returned to state coffers.
Charnwit Nakburi, deputy directorgeneral at Sepo, said this year’s investment budgets of the 45 state enterprises come to 329 billion baht. Of that, some 129 billion baht or 87% was spent between October last year and June this year.
Meanwhile, Deputy Prime Minister and Commerce Minister Jurin Laksanavisit said a meeting of the state, the private sector and palm growers had agreed to a proposed price guarantee of 4 baht per kilogramme of palm nuts under a maximum quota of 25 rai per household.
The Bank of Thailand stunned the market yesterday by following the lead of other major central banks with a 25-basis-point rate cut, the first rate decrease since 2015, in an effort to boost the economy.
The Monetary Policy Committee (MPC) voted 5-2 to cut the benchmark rate from 1.75% to 1.5%, akin to the previous level before the rate-setting panel hiked the interest rate in December last year.
The committee assessed that the economy would expand at a lower rate than previously projected because of a contraction in merchandise exports that started to affect domestic demand, said MPC secretary Titanun Mallikamas.
“The policy rate is not entering a downward trend,” he said. “The MPC’s consideration is still based on data.”
Previous expectations that the rate would not change were reinforced by central bank governor Veerathai Santiprabhob, who said the rate was already low and further monetary easing would not help much.
Amid heightening trade tensions between the US and China that adversely hurt Thai exports and the country’s stuttering economy, economists were divided over the timing of the central bank’s rate cut, due to limited policy space.
Some suggested that the rate cut would take place later this year, while others forecast such monetary easing to occur next year.
“Financial stability risks have already been addressed to some extent, although there remain pockets of risks that warrant monitoring,” Mr Titanun said. “A more accommodative monetary policy stance would contribute to the continuation of economic growth and should support the rise of headline inflation towards the target.”
On the other hand, two MPC members viewed a rate cut as unnecessary under the existing relaxed monetary policy, reckoning that there remained a need to preserve policy space.
Mr Titanun said monetary policy is a demand management measure that helps support economic growth momentum.
To strengthen economic growth sustainably in the longer term, structural policy in the supply side needs to be changed amid the structural problems of the economy, he said.
Thailand’s economic growth is projected to expand at a lower rate than previously assessed based on an export contraction that has subsequently taken a toll on domestic demand.
The central bank cut its GDP growth forecast for 2019 to 3.3% from 3.8% predicted previously. The payment-based exports forecast is projected to see flat growth, down from 3%.
Public expenditure is anticipated to expand at a slower pace because of constrained budget disbursement and an expected delay in the enactment of the fiscal 2020 budget expenditure, Mr Titanun said.
Despite domestic financial stability remaining sound, the MPC will monitor rising household debt, growth in assets held by saving cooperatives and the financial leverage of large corporations, he said.
GH Bank president Chatchai Sirilai said his bank could lower lending interest rates to fall in line with the central bank’s rate cut, while state-owned financial institutions will hold a meeting soon to determine their lending interest rates.
‘‘ The policy rate is not entering a downward trend. The committee’s consideration is still based on data.
TITANUN MALLIKAMAS Secretary, Monetary Policy Committee
SINGAPORE: Three central banks across Asia Pacific delivered surprise interest rate decisions yesterday as policymakers take aggressive action to counter a worsening global economy.
New Zealand and India led with bigger-than-expected interest rate cuts, while Thailand’s 25-point reduction was a surprise to all but two in a Bloomberg survey of economists.
Policymakers are taking bolder steps to bolster their economies as escalating US-China trade tensions threaten to worsen global growth and currency battles roil financial markets.
The Federal Reserve’s rate cut last week paved the way for more easing in the region, and markets are pricing in the chance of another cut in September after President Donald Trump threatened additional tariffs against China.
“Demand is easing globally, and inflation pressures look set to remain highly restrained,” said Chang Wei Liang, a macro strategist of DBS Group Holdings Ltd in Singapore.
“The dovish bias could remain somewhat entrenched, until there are signs of green shoots in Europe/China, and some meaningful reduction in trade anxiety.”
Major central banks are grappling with the limits of their defence against the oncoming downturn.
The European Central Bank has tipped a fresh round of monetary stimulus in September and has committed to a review of a range of tools to combat the severe slowdown on the continent.
The threat of a currency war has also added a fresh headache for the Bank of Japan, bolstering the safe-haven yen and further putting policy makers’ inflation goal out of reach.
“We already have growth slowing significantly, and this week’s events show how currency now is going to play another role in policymakers’ decisions,” said Sian Fenner, a senior Asia economist at Oxford Economics Ltd in Singapore.
The Reserve Bank of India lowered its benchmark interest rate by an unconventional 35 basis points, its fourth reduction this year to support a slowing economy.
The repurchase rate was reduced to 5.4%, the lowest since 2010, surprising most of the 40 economists surveyed by Bloomberg who had predicted a quarter-point cut.
Aastha Gudwani, an economist at Bank of America Merrill Lynch in Mumbai, was the only analyst to correctly predict the move.
Governor Shaktikanta Das, who had previously flagged the possibility of a 35-point cut, told reporters yesterday that the Monetary Policy Committee viewed a 25 basis-point move as “inadequate.”
“A 50-point reduction would have been ‘excessive’ and a 35-point easing was deemed ‘balanced,’” he said.
The RBI has been the most aggressive in Asia in cutting interest rates this year to boost growth from a five-year low and spur investments.
The central bank again cut the economy’s annual growth forecast. It expects growth for the year that began April 1 at 6.9%, down from 7% seen in June.
The Reserve Bank of New Zealand reduced its rate by 50 basis points to 1%; economists had forecast a 25 basispoint reduction.
RBNZ governor Adrian Orr and his policy committee eased the official cash rate to a record low as slowing economic growth prevents inflation from returning to the central bank’s goal.
He signaled further easing could be possible and even hinted at non-conventional policy as the global outlook darkens amid a worsening economic conflict between the US and China.
“Growth has slowed over the past year and growth headwinds are rising. In the absence of additional monetary stimulus, employment and inflation would likely ease relative to our targets,” the RBNZ said. “Global economic activity continues to weaken, easing demand for New Zealand’s goods and services.”
The RBNZ also cut its forecasts for economic growth, saying it now expected gross domestic product to increase 2.7% in the year through March 2020 compared to 3.2% previously. It sees growth lifting to 3% by early 2021.
The Bank of Thailand’s rate cut was the first in more than four years.
The Philippines is set to decide monetary policy toiay, with 24 of 26 economists predicting a 25-point cut.
Bangko Sentral ng Pilipinas governor Benjamin Diokno this week said “there’s space for 50 basis points of easing before year’s end.’’