BoT cuts a further 25bp; risk of more cuts

The Bank of Thailand unexpectedly cut its policy rate a further 25bp today, taking the rate to a near 5-year low of 1.50%.
This was the first back-to-back easing in policy since the period following 2011's floods, and against the consensus expectations for an on-hold decision. 

The decision to cut also garnered more support than the March cut, with the vote split 5-2; the two dissenters favoring an on-hold decision. The statement was notably more dovish both in its concerns over the external outlook - explicitly referring to the negative impact of recent THB strength on exports for the first time - as well as on inflation, where reference was made to the drag from weak domestic demand, not just oil prices. The central bank also stated that it would 'issue more rules to accommodate outflows' at a briefing tomorrow - a measure likely intended to put further downward on the THB.

"BOT to keep policy on hold from here as a base case scenario, the risk has clearly increased that the BoT could take the policy rate lower still, potentially beyond its all-time low of 1.25%", says Barclays in a report.

The triggers for further easing would be if the THB continues to outperform its regional peers, or if confidence and domestic demand indicators remain weak over the next few months.

While a near-term pickup in fiscal spending should be supportive, the structural factors weighing on spending in the medium term are unlikely to be resolved soon. In the absence of this, and given the continued decline in inflation, the space for further accommodation remains.