Bank of Thailand cuts policy rate by 25 bps, unlikely to cut rates further in 2019

The Bank of Thailand lowered its policy rate today by 25 basis points to 1.25 percent in a 5-2 vote. The BoT cited lacklustre growth and the effect of a solid currency on exports and tourism as main factors behind its decision.

Today’s decision marked its second rate cut in 2019 and followed a string of soft data releases. The high frequency data imply the contraction in manufacturing production deepened in the third quarter, while both private consumption and investment indicators also deteriorated. Accordingly, the third quarter GDP data are expected to show another quarter of disappointing sub 3 percent growth, noted ANZ in a research report.

In the meantime, headline inflation has continued to ease to just 0.11 percent year-on-year in October, marking the fifth consecutive month it has remained below the central bank’s 1 to 4 percent target band. Core inflation remained weak, at just 0.44 percent year-on-year.

“We think the bar for an additional rate cut is high, given that the central bank’s policy rate is already back at its record low of 1.25 percent. Overall, we think today’s cut likely marks the end of the BoT’s current easing cycle, unless growth fails to pick up in 2020 as we expected. The central bank will likely turn to more FX measures rather than rate cuts to address persistent THB strength, if needed”, added ANZ.