Bank of Thailand cuts key interest rate by 25 bps to 1 pct to underpin growth

The Bank of Thailand, today, cut its key policy rate by 25 basis points to a new record low of 1 percent to underpin growth. The decision to cut rate was unanimous. Today’s cut was the third in the central bank’s current easing cycle.

The accompanying statement flagged considerable downside risks to its 2020 growth forecast in the midst of the novel coronavirus outbreak, delay in the budget bill, and drought. Today’s statement also noted that inflation is expected to come below the lower bound of the BoT’s inflation target of 1 to 3 percent.

Assistant Governor Titanun Mallikamas, in the press conference, stated that the lowering of interest rate is aimed at stimulating liquidity and underpinning debt restructuring. He also flagged that the Thai baht is still not consistent with fundamentals in spite of its recent softness and added that the central bank will continue with the easing of capital outflow rules. But markedly, he declined to clarify if the central bank has policy space left, noted ANZ in a research report.

The Bank of Thailand has hinted that the effect of the novel coronavirus outbreak, drought and budget bill are key factors that the monetary policy committee will monitor in deliberating monetary policy.

“With conventional policy space diminishing, the bar for a further rate cut will be high, in our view. Should there be signs suggesting that the implementation of the FY2020 budget could start by April, we suspect the BoT will be more inclined to keep its policy rate on hold and leave fiscal policy to take the lead in bolstering economic activity. However, should there be a prolonged spread of the virus (beyond Q1 this year) or an extended delay to the implementation of the FY2020 budget, the pressure on the BoT to act again would rise”, added ANZ.