The Bank of Thailand held its benchmark interest rate at an all-time low and said it was prepared to use “additional appropriate monetary policy tools” to support an economy suffering the biggest blow in Asia from the coronavirus pandemic.
The central bank kept its policy rate at 0.5% in a unanimous decision Wednesday. All but two of the 26 economists in a Bloomberg survey predicted a hold after three rate cuts earlier this year.
The Bank of Thailand “previously highlighted a desire to preserve its limited policy space for a ‘worst-case’ scenario, but June data suggest things were improving — albeit gradually and from a low point,” said Krystal Tan, an economist at Australia & New Zealand Banking Group Ltd. in Singapore. “We think the BOT’s focus now is on improving the effectiveness of its current policies.”
The baht traded 0.3% higher against the dollar, headed for its highest close since July 1. The nation’s benchmark stock index was up 0.46% as of 2:57 pm local time.
Southeast Asia’s second-largest economy is forecast to contract 8.1% this year, the most on record, with Bank of Thailand Assistant Governor Titanun Mallikamas saying Wednesday a recovery would take at least two years. The economic damage could reach as much as 3 trillion baht ($96.8 billion) because of the hit to tourism and exports, Thailand’s key growth drivers.
Titanun said Thailand’s economy is “gradually recovering” as movement restrictions against the pandemic are eased, but warned of the risk of a second wave of infections.
With the policy rate close to zero, the central bank is running out of conventional monetary policy space to spur the economy and boost prices as deflation sets in.
The bank has said it’s studying options like large-scale asset purchases and some form of yield-curve control.
Government measures going forward should focus on jobs, economic restructuring and recovery, Titanun said. He urged banks to step up lending and accelerate debt restructuring for households and businesses.
At the same time, authorities are worried about the currency’s gains, which threaten to undermine any recovery in exports. The baht has gained more than 4% against the dollar in the past three months, the best performer among Asian currencies tracked by Bloomberg.
Monetary Policy Committee members “see that if the baht strengthens too fast, it may affect the economic recovery,” Titanun said. “The central bank should follow the FX market closely and assess the need to take additional measures.”
The country is in the midst of installing a new economic team, including a new central bank governor and finance minister. Sethaput Suthiwart-Narueput, a member of the Monetary Policy Committee, was named last week as a successor to central bank Governor Veerathai Santiprabhob, whose term finishes in September.
While Thailand has had relative success in containing the virus, the government has extended the country’s state of emergency for a fourth time, by one month through August 31, to prevent a second wave of infections.
“After three rate cuts this year and in the midst of a Cabinet reshuffle, this was a window where the Bank of Thailand would want to consolidate and review its strategy,” said Howie Lee, an economist at Oversea-Chinese Banking Corp. in Singapore. “The monetary buffer is thin and the focus going forward is whether the BOT will embark on any unconventional policies such as quantitative easing or yield-curve control. That talk, however, is likely to gain traction only after the new Cabinet comes onboard.”