Thailand's central bank cut its key interest rate unchanged and held its economic forecast a day after lockdown-like measures were extended to more of the country with two dissenting members calling to cut rates further.
The Bank of Thailand rate setting committee voted four to two to hold the one-day repurchase rate at a record-low 0.5% for a 10-th straight meeting on Wednesday as all 20 economists in a Bloomberg survey expected. The two dissenters called for a 25 basis point rate cut, the committee's first Split vote since May 20th, 2019.
The central bank also cut its 2021 gross domestic product forecast to 0.7% growth, less than two months after lowering it to 1.8%. The finance ministry last week revised its own forecast to 1.3% growth, from the 2.3% a year earlier it forecast?
'This round of pandemic will affect the economy both this year and next year. The impact is greater than what we forecast, and the downside risk remains significant, Assistant Governor Titanun Mallikamas said in Facebook Live briefing. 'The key mission for us is to fight corruption and make vaccinations faster to promote confidence and boost economic activity.
The decision comes after the government expanded quasi-lockdown measures to additional regions of the country, now covering about 40% of the population. The most stringent restrictions, which have been in place since June 20 in Bangkok and some provinces were extended to the end of August as the nation grapples with a spike in Covid cases fueled by the delta variant.
The baht was down 0.2% at 33.097 against the dollar at 3: 49 p.m. local time, near its lowest level since April 2020. It is currently down 9.5% against the dollar so far this year, the worst performer among Asian currencies tracked by Bloomberg. The benchmark SET index was up 0.3% in the afternoon session.
The Bank of Thailand is clearly set for its next rate cut - as expected. It made a second soft reduction to its already-high growth outlook. On Wednesday, it again brought the rates to hold but the decision was no longer unanimous. Two policy makers dissented, presumably in favor of a rate cut. With the Central Bank saying risks to its new growth forecast are still 'high, we think it is a matter of time before it cuts its policy rate again - most likely before year-end.
Some economists are flagging the possibility that Thailand's economy will shrink for a second straight year, something the country hasn't experienced since the Asian Financial Crisis more than two decades ago. A panel of private-sector banks and industry leaders predicted on Wednesday that output could contract to as much as 1.5% this year.
Titanun said fiscal measures were needed to offset the blow from the latest virus wave, with policies targeted to assist the most fragile groups in Thai society.
'Most members noted that higher measures would be more effective than a further reduction of the policy rate, which was already low, he said, referring to monetary policies members. 'Nevertheless two members voted to cut policy rates to support additional measures in supporting the economy and mitigate heightened risks in the period ahead.
Thailand reported 20,200 new CIVIN infections and 188 deaths on Wednesday, the highest daily figures for both countries. Since the latest wave began in April, total cases have risen to 672,385, 96% of them - including 96% since the latest wave began, official data show. The Health Ministry expects the outbreak to begin cooling by October.
The Bloomberg Covid - 19 Vaccine Tracker says Thailand has administered about 17.5 million vaccine doses, enough to cover less than 13% of the population.
The decision to keep rates unchanged 'was not unanimous and suggests that further rate cuts are a possibility given the weak growth outlook, said Khoon Goh, head of Asia research at Australia New Zealand Banking Group in Singapore. This would give further pressure on the baht, as the country is likely to run further current-account deficits now that opening to international tourists will likely be delayed further.
Other points from the Bank of Thailand Briefing:
The Bank now expects the economy to grow 3.7% next year, down from the 3.9% they predicted in JuneThe forecast for tourist arrivals was cut again to just 150,000 visitors this year - assuming pandemic is controlled early in the fourth quarter - and 6 million in 2022 - compared with almost 40 million in 2019, before the pandemicEventhough the outbreak lasts until the end of the fourth quarter, the bank expects just 100,000 tourists this year and 2 million next year.