Thai central bank holds key rate, cuts growth forecast for 2022

[BANGKOK] Thailand's central bank held its benchmark interest rate unchanged for a 13th straight meeting to assess how much risk the Omicron variant poses to a fragile economic recovery.

The Bank of Thailand's rate setting committee voted unanimously to hold the 1-day bond repurchase rate at a record-low 0.5 per cent Wednesday (Dec 22), as predicted by all 20 economists in a Bloomberg survey.

The central bank also lowered its forecast for next year's gross domestic product growth to 3.4 per cent from 3.9 per cent previously while boosting the 2021 expectation to 0.9 per cent from 0.7 per cent.

The Monetary Policy Committee "assessed that the Omicron outbreak would affect the economy in early 2022," the central bank said in a statement announcing its decision. "The impact could be more severe and prolonged than expected due to downside risks such as the severity of the outbreak and the strictness of corresponding containment measures."

Prime Minister Prayuth Chan-Ocha earlier this week halted the country's quarantine-free entry programme after less than 2 months, citing concerns that tourists could spread the Omicron strain.

Bank of Thailand Governor Sethaput Suthiwartnarueput said last week the new virus variant poses a risk to the recovery, and that additional variants in the future could impact growth estimates if they derail projected tourist arrivals.

Thailand's vaccination program has accelerated in recent months, with 70 per cent of the population receiving at least 1 dose and 62 per cent getting 2. New infections dropped to 2,532 cases Wednesday, compared with its peak of more than 20,000 cases in August. The nation has detected 104 Omicron cases since the first case was confirmed earlier this month.

"On the plus side, economic activity looks to have bounced back strongly in the final quarter of the year, after the government eased restrictions in response to a fall in cases of Covid-19," said Gareth Leather, senior Asia economist at Capital Economics. "However, the first quarter of next year is likely to be a lot weaker than we had previously envisaged."

The committee noted that headline inflation had risen temporarily due to supply-side factors, particularly energy prices, but that these were expected to subside in the second half of 2022.

"The likelihood of second-round effects remained low due to limited cost pass-through given the slow economic recovery as well as weak employment and labour income," the statement said. "Nevertheless, the Committee assessed that headline inflation would be subject to upside risks given higher global inflation and thus warranted close monitoring."

Among the central bank's main objectives - maintaining price stability, supporting economic growth and preserving financial stability - the committee "continued to put emphasis on supporting the economic recovery".

The bank expects the economy to grow 4.7 per cent in 2023 while headline inflation was projected at 1.2 per cent, 1.7 per cent and 1.4 per cent in 2021, 2022 and 2023, respectively.

The committee now expects Thailand to receive 280,000 visitors this year - up from a previous projection of 150,000 - but cut the 2022 forecast to 5.6 million from 6 million. The forecast of 20 million visitors for 2023 would still be just half of the pre-pandemic total.

BLOOMBERG