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Thailand's central bank cuts GDP outlook, holds key rate at record low
[BANGKOK] Thailand's central bank expects the economy to contract by the sharpest rate on record this year but kept its policy rate steady on Wednesday, as businesses gradually reopen from a lockdown that has hit jobs and consumption.
The country has started a phased reopening but the impact of curfews and border closures on manufacturing and tourism threaten to tip South-east Asia's second-largest economy into a deeper slump than during the global financial crisis in 2008.
The Bank of Thailand (BOT) kept its policy rate steady, as widely expected, and downgraded its 2020 gross domestic product forecast to a contraction of 8.1 per cent from a 5.3 per cent decline projected in March.
The Monetary Policy Committee (MPC) voted unanimously to keep its one-day repurchase rate steady at 0.50 per cent, after cutting it three times this year to help the export and tourism-driven economy weather the pandemic. "The committee viewed that the extra accommodative monetary policy since the beginning of the year as well as the fiscal, financial, and credit measures additionally announced helped alleviate adverse impacts and would support the economic recovery after the pandemic subsided, facilitate the return of inflation to the target, and reduce financial stability risks," the MPC said in a statement.
In a Reuters poll, 17 of 20 economists had predicted no policy change.
The central bank said it expects the second quarter to shrink by double digits and is worried strength in the baht could affect the recovery. It added it would closely monitor the market and assess the necessity of additional, appropriate measures.
The BOT has cut rates five times since August and economists said the decision to leave interest rates unchanged despite the dire outlook for the economy suggests that further cuts were unlikely.
"Instead, the emphasis over the coming months is likely to be on what unconventional measures the central bank can take to support demand," said Gareth Leather, economist at Capital Economics.
The BOT now forecasts 2020 exports will fall 10.3 per cent, worse than the 8.8 per cent drop estimated earlier.
It expects foreign tourist numbers to plunge 80 per cent to eight million this year.
However, the country has removed most restrictions to revive the economy as virus cases slow.
The economy is forecast to grow 5 per cent next year, faster than the 3 per cent rate seen in March, while 2020 headline inflation will be minus 1.7 per cent versus minus 1 per cent. The BOT's target range is 1-3 per cent.
To help mitigate the impact of the virus, Thailand has introduced billions of dollars of fiscal and monetary steps and relief measures.