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Thailand holds key rate, cuts economic forecasts as exports stumble
THAILAND’S central bank left its benchmark interest rate unchanged at a record low on Wednesday, while cutting its growth forecasts for this year and next as exports take a hit from the US-China trade war and a strong baht.
The Bank of Thailand’s (BOT) monetary policy committee (MPC) voted unanimously to keep the one-day repurchase rate at 1.25 per cent, a record low last seen during the global financial crisis.
The BOT trimmed its 2019 gross domestic product (GDP) growth forecast to 2.5 per cent from the 2.8 per cent estimated in September; and lowered its 2020 growth outlook to 2.8 per cent from 3.3 per cent on heightened external risks. Last year’s growth was 4.1 per cent.
Exports, a key driver of economic growth, are now expected to shrink 3.3 per cent this year, compared with a 1 per cent fall seen earlier.
Next year’s exports are expected to rise by a smaller 0.5 per cent, rather than 1.7 per cent.
“The Thai economy would expand below its potential and below the previous forecast, mainly as merchandise exports had contracted more than the previous assessment and were projected to recover more slowly than expected,” the central bank said in a statement.
South-east Asia’s second-largest economy is facing flagging growth, below-target inflation, a climbing baht, risks to financial stability and falling consumer confidence.
Capital Economics said in a research report that it expects the central bank to ease once more in this cycle, with rates being lowered to just one per cent by early next year.
Thammarat Kittisiripat, economist at Tisco Group, also expected a further quarter-point cut next year, as he saw growth of just 2.6 per cent next year and limited government spending.
The MPC committee said in a statement that the current policy rate remains accommodative for growth and supports prices moving toward the central bank’s target – currently 1-4 per cent.
The central bank cut its forecasts for headline inflation in 2019 to 0.7 per cent from 0.8 per cent previously, and to 0.8 per cent from one per cent for 2020.
The BOT also expressed concern about the strength of the baht, Asia’s best performing currency this year, which has risen around 7.6 per cent against the US dollar, putting further pressure on already weak exports.
All 16 analysts in a Reuters poll predicted no policy change.
In November, the MPC voted 5-2 to cut the rate by a quarter point after surprisingly delivering a similar reduction in August, the first easing since April 2015.
Thailand’s economy expanded less than expected in the July-September quarter, as exports were weak. To bolster the economy, the government this year launched US$10 billion in stimulus plus additional steps, and the finance minister said that more can be done if needed. REUTERS