Thai central bank holds key rate, cuts growth forecast for 2021

Bangkok

THE Bank of Thailand kept its benchmark interest rate unchanged for a fifth straight meeting to preserve its limited policy space, while reiterating concerns about a currency rally and lowering its economic growth forecast for next year.

The central bank held the policy rate Wednesday at 0.5 per cent in a unanimous decision, after cutting by a total of 75 basis points earlier this year, and said it stood ready to use more monetary tools if necessary. Sixteen of 17 economists in a Bloomberg survey predicted the hold, with one expecting a 25-basis point cut.

The bank will "monitor the adequacy of the government measures and various risks, especially the new wave of the domestic outbreak, in deliberating monetary policy going forward," according to a statement announcing the decision. "Fiscal measures must continue to sustain the economy." The Covid-19 pandemic has devastated two of Thailand's main growth drivers, tourism and trade. The government has responded with a series of stimulus measures, recently approving an additional US$1.4 billion expenditure for the first quarter of 2021. A fresh virus outbreak over the weekend has added a new risk to the fragile recovery.

Strength in the baht currency, which has rallied more than 9 per cent from this year's low in April, has emerged as a key concern as the government seeks to support exports. The baht was largely unchanged after the decision, up 0.1 per cent to 30.195 per dollar as of 2.19 pm in Bangkok.

Seeking to stem baht gains, the central bank has issued a variety of measures to boost capital outflows, and its dollar purchases pushed foreign reserves to a record US$255.8 billion in the week ended Dec 11. Thailand recently was added to a US Treasury Department monitoring list over its foreign-exchange intervention. The bank said on Wednesday it may need to consider more measures to rein in the currency.

A NEWSLETTER FOR YOU

Friday, 8.30 am

Asean Business

Business insights centering on South-east Asia's fast-growing economies.

Sign Up

"Though the outlook remains fragile and highly uncertain, we still believe the BOT has reached the end of its rate cut cycle. To support growth in 2021 and 2022, we expect the Thai central bank to lean on other tools, especially measures to stem baht gains against key trading partners."

"Though the outlook remains fragile and highly uncertain, we still believe the BOT has reached the end of its rate cut cycle. To support growth in 2021 and 2022, we expect the Thai central bank to lean on other tools, especially measures to stem baht gains against key trading partners," says Tamara Mast Henderson, Asean economist.

The central bank on Wednesday revised up its growth forecast for 2020 - now predicting a 6.6 per cent contraction compared with a previous projection of a 7.8 per cent decline - on an improvement in exports and private consumption. It cut next year's forecast to 3.2 per cent growth, from 3.6 per cent previously.

"The economic forecast next year has high risks, depending on the Covid-19 outbreak and vaccine," Bank of Thailand Assistant Governor Titanun Mallilkamas said. "We have some policy space left and we'll use it at the appropriate time with the most efficiency. We didn't use it this time, but we will assess the situation next time."

The bank sees GDP growing 4.8 per cent in 2022. Exports are expected to decline 7.4 per cent this year before growing 5.7 per cent in 2021. After closing its borders for much of this year, the central bank expects Thailand to welcome 5.5 million tourists in 2021 - down from an estimate of 9 million as recently as September - and 23 million in 2022. That's well below the 40 million figure from 2019.

The bank assumes 20 per cent of Thailand's population will have been vaccinated by the end of 2021 and about 70 per cent by the end of 2022. The bank maintained its inflation forecast at -0.9 per cent for this year and +1 per cent for next year The bank expects to see a current-account surplus of US$16.2 billion in 2020 and US$11.6 billion in 2021. BLOOMBERG