Economist at UOB Group Barnabas Gan reviewed the decision by the Bank of Thailand (BoT) to keep rates unchanged at the March 25th meeting.
“The Bank of Thailand (BOT) kept their one-day repurchase rate unchanged at 0.75%, after cutting 25bps at its unscheduled policy meeting (special meeting) on 23 March 2020. The decision by the monetary policy committee was not a unanimous one: two out of six members opted to cut policy rate by 25bps, while the rest voted to keep it unchanged. This suggested that there are increasing pressures within the committee to further loosen monetary policy in view of the economic headwinds.”
“Policy-makers are now expecting the Thai economy to contract “significantly” and headline inflation to turn “negative” in 2020. According to the monetary policy statement released on 25 March 2020, BOT is now pencilling a contraction of 5.3% for the year ahead due to the coronavirus disease 2019 (COVID-19) pandemic.”
“Given the likelihood for a more severe and protracted COVID-19 pandemic, we downgrade Thailand’s full-year growth outlook to -5.4% for 2020. This is led by double-digit contractions in 1Q20 (-11.4% y/y) and 2Q20 (-12.5% y/y), before growth is forecasted to recover to 1.1% y/y in 2H20 (3Q: -0.8% y/y, 4Q: +3.0% y/y). Thailand has been considered to be one of the economies most vulnerable to the COVID-19 pandemic given its heavy reliance on Chinese tourist and trade.”
“Although monetary policy space remains extremely limited at this juncture, we still pencil a 25bps rate cut in both 2Q20 and 3Q20. This will then bring its one-day repurchase rate to an unprecedented low of 0.25% (from a current 0.75%).”