BoT reduced further its benchmark rate – UOB

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Economist at UOB Group Barnabas Gan gives his views on the recent rate cut by the Bank of Thailand (BoT).

Key Quotes

“The Bank of Thailand (BOT) opted for an early unscheduled policy meeting (special meeting) in a bid to mitigate the negative impacts of the Coronavirus Disease 2019 (COVID-19). On 20 March 2020 (Friday), BOT voted unanimously to cut its one-day repurchase rate by 25bps to a record low of 0.75%, effective 23 March (Monday). This is the fourth rate cut since August 2019, and the first special meeting since 2003.”

“The tone at its latest monetary policy statement is increasingly cautious, suggesting that there are further downside risks to BOT’s full-year growth target of 2.8% in 2020. Policymakers highlighted that the COVID-19 outbreak “would be more severe than previously expected”. The interest rate cut is aimed to “reduce interest burdens of borrowers affected by the outbreak and to alleviate liquidity strain in the financial markets (and to) reinforce fiscal measures already implemented and forthcoming.”

“Furthermore, Thailand authorities and policy-makers also announced three broad measures to “stabilise the financial market and stop the liquidity problem from spreading further”. In a joint statement by the Ministry of Finance, the Securities and Exchange Commission, and the Bank of Thailand, the authorities announced (1) the introduction of a special facility estimated to provide approximately THB 1.0 trillion (US$30.4 billion) of liquidity for mutual funds through commercial banks, (2) the set up of a Corporation Bond Stabilisation Fund to invest THB70-100 billion in high-quality, newly issued bonds by corporates and (3) the continuation to provide liquidity through bond purchasing to ensure that the government bond market continues to function normally.”

“We recognise that policy-space is increasingly limited even as rate cuts are seen. However, further rate cuts may still be on the cards especially if economic fundamentals deteriorate into the first half of 2020 in order to provide further liquidity and economic growth support.”

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