Thai central bank needed to preserve limited policy room: minutes

[BANGKOK] Thailand's central bank chose not to cut interest rates at its last board meeting so that monetary policy could be used at the most effective time and with a view that fiscal policy should play a greater role for now, meeting minutes showed.

On Aug 5, the Bank of Thailand's (BOT) monetary policy committee voted unanimously to leave the one-day repurchase rate steady at a record low of 0.50 per cent after cutting it three times this year.

"The committee viewed that the record-low policy rate would support the economic recovery," the minutes said.

"Moreover, a further decrease in the policy rate would be less effective in the current context, where it could affect financial intermediation, increase vulnerabilities in the financial system through underpricing of risks, as well as affect savings," they said.

The committee "deemed it necessary to preserve the limited policy space in order to act at the appropriate and most effective timing" as economic activity would take at least two years to return to pre-pandemic levels, the minutes said.

"The committee viewed that fiscal policy needed to play a greater role going forward to support economic recovery and economic restructuring," they said.

Thailand has introduced a 1.9 trillion baht (S$83.24 billion) coronavirus response package but drawdown has been slow.

The government will announce more stimulus measures later on Wednesday aimed at supporting an economy that suffered the deepest contraction since the 1998 Asian financial crisis in the second quarter amid the pandemic.

The central bank forecast Southeast Asia's second-largest economy would contract by a record 8.1 per cent this year and will review that at its next meeting on Sept 23.

The committee viewed that an appreciation of the baht could impact economic recovery and would assess the necessity of additional, appropriate measures, such as encouraging balanced capital flows by increasing flexibility and convenience in foreign currency transactions and by promoting further liberalisation of outward portfolio investments, the minutes said.

REUTERS