Bank of Thailand keeps interest rate on hold at 1.5 pct, likely to cut by 25 bps by end-2019

The Bank of Thailand kept its policy rate on hold today at 1.5 percent in a unanimous vote. However, the central bank cut its growth forecast for this year to 2.8 percent from 3.3 percent. The BoT also lowered its 2020 projection to 3.3 percent from 3.7 percent. The central bank noted that its forecasts have factored in the recent fiscal stimulus package as well as the budget delay. It also lowered its headline inflation and core inflation projections for 2019 to 0.8 percent and 0.6 percent, respectively. However, it kept its 2020 forecasts same at 1 percent and 0.9 percent.

BoT’s accompanying statement underlined that policymakers “would stand ready to use policy tools as appropriate”, but provided few clues otherwise on their next move. While the statement noted that Thailand’s economy might “expand at a lower rate than previously assessed and below potential”, it also stated that “financial stability risks had already been addressed to some extent”. In the meantime, Assistant Governor Titanun Mallikamas repeated in his press conference that the monetary policy committee continues to be data dependent.

History implies that the unanimous decision to hold the policy rate today lowers the odds of another cut in the near term, noted ANZ in a research report. However, it is still quite early to rule out further easing of the monetary policy. The economy continues to be on a shaky footing. While tourist arrivals data indicated some signs of improvement, manufacturing production data indicated a deepening contraction.

In the meantime, domestic demand indicators have been sluggish and the stimulus to growth from the government’s latest fiscal package would be significantly smaller than what the headline number implies as fresh stimulus amounts to about 0.3 percent of the GDP.

Meanwhile, the central bank continues to be worried about the strength of THB and has stated that it will “consider implementing additional appropriate measures if necessary”.

“Overall, unless concerns about growth and THB strength dissipate, we think a 25bp rate cut by the BoT by end-2019 is still more likely than not”, added ANZ.