Bank of Thailand keeps interest rate unchanged at 1.25 pct, likely to stand pat in 2020

Bank of Thailand maintained its polict rate at 1.25 percent and cut its growth and inflation forecasts for both 2019 and 2020. The decision to keep rate on hold was unanimous. The central bank had previously lowered its policy rate twice by 25 basis points each in August and November.

After easing the possibility of forecast downgrades last month, the Bank of Thailand today officially cut its growth and inflation projections. It anticipates headline inflation and core inflation to come in at 0.7 percent and 0.5 percent, respectively in 2019. Growth is expected at 2.5 percent. The central bank now expects growth to come in at 2.8 percent in 2020 and headline inflation and core inflation are expected to come in at 0.8 percent and 0.7 percent, respectively.

The accompanying statement noted that financial conditions have stayed accommodative because of the two policy rate cuts earlier, and that the committee might monitor growth, inflation and financial stability dynamics for future monetary policy decisions.

“We expect the economy to regain a firmer footing in 2020, supported by tourism and public spending”, said ANZ in a research report.

In the meantime, headline inflation accelerated in November. Inflation is likely to accelerate as high base effects start to wane and the rate of fall in oil prices slows. Core inflation is also rising, and the real policy rate based off core inflation is now widely consistent with its historical average after the November rate cut.

“With regards to the THB, rate cuts alone are unlikely to weaken the currency, whose strength has been primarily driven by other factors, including a large current account surplus. Accordingly, we think the central bank will likely employ FX measures rather than further rate cuts to address persistent THB strength, if needed. Overall, the growth trajectory is likely to be the key determinant for monetary policy. Unless the growth outlook deteriorates further, we think the BoT will keep its policy rate unchanged next year”, added ANZ.