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Thailand: BoT cuts policy rate to record-low 1%
The Bank of Thailand yesterday cut its policy rate by 25 basis points to an unprecedented 1% to curb the impact of the novel coronavirus outbreak, the delayed fiscal budget and severe drought conditions.
The decision prompted Kasikornbank (KBank) to pass on the cut in full for its minimum retail rate (MRR).
Spearheading rate reductions, KBank said it would trim MRR by 0.25 percentage points, from 6.87% to 6.62%, effective today. It will keep two other prime lending rates, minimum lending rate (MLR) and minimum overdraft rate (MOR), unchanged.
The country’s largest lender by assets is also lowering the savings rate for juristic persons by 10-12 basis points, and for time-deposit rates by 5-25 basis points.
The central bank’s seven-member Monetary Policy Committee voted unanimously to lower the policy rate, said MPC secretary Titanun Mallikamas.
The panel reckoned that the Thai economy would expand at a much slower pace in 2020 than previously forecast, and below its potential, because of the risk factors listed, he said.
Financial instability is likelier because of the economic slowdown, Mr Titanun said.
“There was an urgent need to coordinate monetary and fiscal measures,” he said. “The committee believed a more accommodative monetary policy stance would alleviate negative impacts. Monetary accommodation would also support liquidity provision and debt restructuring for businesses and households severely affected by the economic slowdown, both of which should be urgently implemented.”
The central bank in mid-December downgraded its economic growth forecast for 2020 to 2.8% from the 3.3% seen in September. Research houses have been more drastic, with TMB Analytics predicting growth of 1.7-2.1% this year.
“Tourist figures are expected to grow at a much lower rate than previously forecast,” Mr Titanun said. “The Bank of Thailand has been monitoring the situation with a three-scenario projection covering baseline to worst-case scenario.”
Regarding domestic demand, public expenditure is likely to grow at a lower rate because of the delayed fiscal budget.
Exports of goods is expected to decrease in line with trading partner economies and the potential impact of regional supply chain disruption.
Mr Titanun said headline inflation is projected to be below the lower bound of the inflation target throughout the forecast horizon.
Furthermore, private consumption will be restrained by moderating household income in the services, agricultural and manufacturing sectors, as well as by elevated household debt.
Although the baht has depreciated somewhat in relation to trading partners’ currencies, this may not be consistent with economic fundamentals and its status is likely to remain volatile.
The committee will closely monitor developments of exchange rates and capital flows amid high external uncertainties, as well as the effectiveness of the relaxation of foreign exchange regulations to facilitate capital outflows.
“The committee encouraged the central bank to continue implementing additional measures in collaboration with the government and related agencies,” Mr Titanun said.
There were further vulnerabilities detected in the financial system, especially related to the debt-servicing capability of households and SMEs in light of the economic slowdown.
Further easing expected
Pipat Luengnaruemitchai, assistant managing director, chief economist and co-head of CIO Office at Phatra Securities, predicts one more rate cut around mid-year after yesterday’s monetary easing.
Although the policy rate could be less than 1% this year, it’s not a big concern given the negative policy rates in some countries, he said.
“We do not rule out further cuts,” said Tim Leelahaphan, Thailand economist at Standard Chartered Bank. “We do not deem today’s move pre-emptive, but it reflects a lack of alternative policy tools to deal with weak fundamentals.”
Further accommodative monetary policy should be justified by economic conditions, the outlook and the baht, he said.
Soraphol Tulayasathien, senior executive vice-president of the Stock Exchange of Thailand, said the latest 25-basis-point rate cut will help reduce operating costs and boost stock market sentiment.
A policy mix of fiscal and monetary action is needed to stimulate Thailand’s economic growth at this time, he said, while further monitoring has to be made as to whether commercial banks will respond to the central bank’s move by lowering their own lending rates.
Therdsak Thaveeteeratham, executive vice-president of Asia Plus Securities, said the rate cut was as expected because of several negative incidents this quarter, resulting in higher volatility in global financial markets.
Monetary easing will help ease some pressure and support investment incentives, he said.
Source: https://www.bangkokpost.com/business/1851544/bot-cuts-policy-rate-to-record-low-1-