The Bank of Thailand yesterday cut its benchmark interest rate to a fresh record low and said that it was ready to use additional policy tools if needed with the Thai economy expected to shrink further.
By a 4-3 vote, the central bank lowered the policy rate by 25 basis points to 0.5 percent, its third cut this year.
All but three of 24 economists in a Bloomberg survey correctly predicted the decision, with the others expecting no change.
The central bank “looks ready to use other, albeit unspecified, tools, which implies other measures aside from policy easing, especially as the room for lower rates is declining,” TD Securities senior emerging markets strategist Mitul Kotecha said in Singapore.
Thailand’s economy in the first quarter of this year contracted the most since 2011 as the COVID-19 pandemic slammed the nation’s two key drivers — exports and tourism.
The Thai Office of the National Economic and Social Development Council earlier this week forecast that the economy would contract as much as 6 percent this year, its worst economic performance since the Asian financial crisis more than two decades ago.
The central bank yesterday said that this year’s contraction might ultimately be more severe, as the blow to exports and tourism was greater than expected.
The travel outlook remains bleak, with Thailand’s borders mostly closed as part of a state of emergency imposed in March that lasts through this month. Most inbound international flights are banned until the end of next month.
The central bank said that it was worried about the recent strength in the baht, which has gained more than 1.8 percent in the past month to be the second-best performer in Asia.
The currency was little changed at 31.887 baht to the US dollar after the decision.
“Prospects for more easing will at least in part be contingent on the baht,” Kotecha said. “Further appreciation will likely trigger more easing. [The Bank of Thailand] is clearly concerned about baht strength.”
The monetary policy easing adds to the government’s fiscal stimulus, which World Bank estimates place at 15 percent of GDP, among the highest in the region. That includes US$12 billion in emergency cash handouts to encourage consumer spending.
Bank of Thailand Assistant Governor Titanun Mallikamas said that unemployment as a result of the pandemic had contributed to the economic contraction, adding that support should be provided to small and medium-sized enterprises.
The government early this month began easing some restrictions, with shopping malls and retail businesses allowed to reopen since last weekend.
Still, the pace of recovery — and future policy actions — will likely depend on how quickly external drivers such as exports and tourism revive.
“We expect a further 25 basis-point cut in the third quarter, taking the policy rate to 0.25 percent,” Standard Chartered PLC economist Tim Leelahaphan said in Bangkok. “We do not rule out further policy rate cuts below the 0.25 percent level.”
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