Bank of Thailand keeps interest rate on hold at 0.50 pct, lowers 2020 growth forecast to -8.1 pct

The Bank of Thailand maintained its key policy rate at 0.50 percent during its meeting today. The decision to keep the interest rate on hold was unanimous. Meanwhile, the central bank revised its 2020 growth projections to -8.1 percent year-on-year from its previous forecast of -5.3 percent. The downgrade partially shows a bleaker outlook for the significant tourism sector. BoT now expects only 8 million tourist arrivals in 2020, which will result in an 80 percent year-on-year slump. For 2021, the BoT expects growth of 5 percent, with 16.2 million tourists.

On the inflation front, the central bank expects the headline and core inflation to come in at -1.7 percent and 0 percent, respectively, in 2020. For 2021, the headline inflation is expected to come in at 0.9 percent, while the core rate is expected at 0.1 percent.

According to assistant governor Titanun Mallikamas, second quarter likely marked the bottom for the economy, and that economic signs have rebounded since lockdown measures were eased. Indeed, several real time indicators have begun picking up, as well as sentiment levels among households and businesses.

Nevertheless, the BoT is concerned regarding the trajectory of the THB, and will assess the need for measures to rein in currency strength, said ANZ in a research report. The central bank gave some clues to its monetary poicy stance going forward, aside from reiterating its readiness to use more tools if required.

“In our view, weak growth and inflation dynamics suggest further policy support is needed. Fiscal policy is likely to do the heavy lifting, while we expect the focus for the central bank to be on capping borrowing costs, boosting credit to corporates and arresting THB strength rather than conventional rate cuts”, added ANZ.