BoT likely to leave policy rate unchanged, to lower 2019 and 2020 economic growth forecasts: Scotiabank

The Bank of Thailand (BoT) is expected to leave its policy rate unchanged at a record low of 1.25 percent on Wednesday afternoon. Thailand’s CPI inflation will likely increase moderately in December from 0.21 percent y/y the previous month on the back of the base effect, but remains benign compared to the central bank's 2.5 percent ± 1.5 percent target range, according to the latest research report from Scotiabank.

The Thai central bank will also release updated economic forecasts in the afternoon on Wednesday. BoT Deputy Governor Mathee Supapongse said on November 13 that the central bank would likely lower its 2019 and 2020 economic growth forecasts that are currently at 2.8 percent and 3.3 percent respectively.

On November 23, BoT Governor Veerathai Santiprabhob said that Thailand has limited space to deliver a "strong dose" of monetary policy as negative interest rates "will create lots of structural problems." He added that inflation isn’t a big problem for Thailand at present but financial stability risk has become a challenge for monetary policy.

In the meantime, expansionary fiscal policy is expected to play a more important role in spurring the nation’s economic growth. On November 26, the Thai cabinet approved the finance ministry's package which comprises three measures and will inject about THB144 billion into the economy to tackle economic slowdown, on top of a THB316 billion (USD10.3 billion) stimulus package it passed in August.

The THB has been outperforming regional peers this year, likely due to business relocation and investment diversification. It has weighed on Thailand’s tourism and exports, raising concerns of the policymakers, the report added.

The BoT cut its policy rate by 25 bp to 1.25 percent on November 6 and rolled out measures including easing rules on capital outflows to rein in the baht’s persistent strength. Moreover, the current level of Thailand’s SET share index suggests the THB has been overbought.

While USD/THB is likely to trade between 30.5 and 31.0 in the near term, political protests could weigh on the baht and curb its gains amid continued equity outflows. On Saturday, thousands of people joined the biggest protest in Bangkok since a 2014 coup, after Thai authorities moved to ban the Future Forward Party that has rallied opposition to the government.

"We maintain our short THB/KRW position with an initial target of 38.0 and a new stop of 39.6. In addition, we would like to buy TWD/THB cross at 1.00 now by considering Taiwan’s stock inflows, with a target of 1.04 and a stop of 0.98," Scotiabank further commented in the report.