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Thailand Set to Keep Rates at a Record Low: Decision Guide

Suttinee Yuvejwattana
·3-min read

(Bloomberg) -- Thailand’s central bank is set to keep its benchmark interest rate unchanged at an all-time low Wednesday as it calls on the government to use fiscal stimulus to spur the pandemic-hit economy.

All 22 economists in a Bloomberg survey predict the Bank of Thailand will keep the key rate at 0.5% after reducing it three times earlier this year.

Policy makers are keen to preserve their limited ammunition to respond to any further downturn as the coronavirus pandemic weighs on global growth. Governor Veerathai Santiprabhob recently played down the possibility of more rate cuts, saying fiscal policy can play a greater role in reviving the economy. The Cabinet this week approved measures worth $2.2 billion to boost jobs and consumption.

“While continued accommodative policy settings are warranted, I think the BOT’s priority now is on improving the effectiveness of current policy measures,” such as debt restructuring and its loan program for small businesses, said Krystal Tan, an economist at Australia & New Zealand Banking Group Ltd. in Singapore. She expects the central bank to stay on hold for the rest of the year.

Here’s what to watch for in Wednesday’s decision:

Growth Forecast

The central bank will release a new economic forecast as it weighs improving indicators and the outlook for foreign tourist arrivals. In June the bank predicted gross domestic product would shrink 8.1% this year, its worst annual performance ever.

The economy may be headed for a second straight year of contraction in 2021 if it continues to restrict foreign visitor arrivals, Bank of Thailand Senior Director Don Nakornthab wrote last week.

Policy Tools

Veerathai, who will step down at the end of the month, recently told Bloomberg the bank has been studying unconventional policy steps such as yield-curve control, but doesn’t think they’re needed right now. While all options, including interest-rate cuts, remain on the table, targeted policies that get funds to the sectors that need them most can be more effective, he said.

Pimchatr Ekkachan, a senior economist at Krung Thai Bank in Bangkok, said she expects the central bank to announce further “unconventional tools,” such as quantitative easing, supply-side measures or debt restructuring.

Succession, Baht

Most economists don’t expect drastic policy changes under Veerathai’s successor, Sethaput Suthiwart-Narueput, who has been a member of the bank’s Monetary Policy Committee for several years already.

The baht’s gains in the first quarter were a source of concern for the central bank, but it’s been weakening steadily since then and is down more than 4% against the dollar so far this year, making it the second-worst performer in Asia. Still, the central bank will likely maintain its close watch on the currency as a strengthening baht could hold back the fragile economy.

(Updates number of economists in second paragraph, adds stimulus measures in third paragraph.)

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