Thailand
Thailand: Central bank feeling the heat from Fed’s rate cut
The Federal Reserve’s emergency rate cut will put pressure on the Bank of Thailand to follow in the US central bank’s footsteps, according to a senior official at the Fiscal Policy Office (FPO).
“If the Bank of Thailand finds the economy would grow at a slower pace than expected, it will be another factor that encourages the Monetary Policy Committee (MPC) to slash the policy rate,” said Pisit Puapan, director of the FPO’s Macroeconomic Policy Bureau.
The Fed’s Tuesday rate cut indicated concern about the coronavirus outbreak, Mr Pisit said, so other countries must seek ways to take care of their own economies.
The Bank of Thailand’s rate setters are set to meet on March 25 to make the rate decision and review their forecast for Thai GDP growth this year.
Several economists expect the MPC to further ease monetary policy to blunt the impact of the virus epidemic after cutting the benchmark rate by 25 basis points to a record low of 1% last month.
The MPC’s minutes of the Feb 5 meeting said the country’s economic growth this year would be much lower than the current forecast of 2.8%.
Mr Pisit said the Fed’s surprise rate cut by half a percentage point will weaken the US dollar against the baht, but the FPO estimates that the stronger baht will be short-lived because the virus spread continues to depress the local currency.
The baht, the best-performing currency in Asia the past two years, is down 4.7% against the greenback this year.
Titanun Mallikamas, assistant governor for monetary policy at the Bank of Thailand, said the central bank is closely monitoring the situation.
Commenting on the Fed’s rate cut, he said the US central bank’s move was aimed at alleviating the impact of the virus epidemic and each country is implementing measures as appropriate.
The Bank of Thailand lowered the policy rate by 25 basis points at the Feb 5 meeting to mitigate the virus impact. It also issued measures to improve financial liquidity and restructure the debt of business operators and households ravaged by the sagging economy, Mr Titanun said.
Tim Leelahaphan, an economist at Standard Chartered Bank Thai, predicts another 25-basis-point reduction by the MPC at the upcoming meeting, taking the benchmark to 0.75%.
“Ultra-low policy rates could arguably pose risks to financial stability, and their pass-through to commercial banks’ rates could be limited,” he said. “However, given the limited role of fiscal spending in countering weak growth and the lack of effective fiscal and monetary policy coordination, we think further rate cuts will need to do the heavy lifting to support the economy.”
The bank sharply downgraded its economic growth outlook for 2020 to 1.8% from 3% seen previously.
“We expect first-quarter growth to slow to 0.5% year-on-year, or -0.3% seasonally adjusted quarter-to-quarter,” Mr Tim said. “While we expect growth to start normalising later this year as the coronavirus impact fades, weakness is set to persist until fiscal spending has accelerated and the private sector responds.”
Thailand in 2019 delivered 2.4% GDP growth, the weakest showing in five years.
Source: https://www.bangkokpost.com/business/1871934/central-bank-feeling-the-heat-from-feds-rate-cut