Thailand: MPC may cut rate on shaky recovery

The Bank of Thailand’s Monetary Policy Committee (MPC) could cut the policy rate in next year’s first quarter if the economic recovery is shaky, says Kasikorn Research Center (K-Research).

Thai exports face uncertainty in the first quarter given higher freight cost, while first-quarter private consumption patterns usually slow from the final quarter, said K-Research deputy managing director Thanyalak Vacharachaisurapol.

Freight cost for shipping containers from China to Southeast Asia has been on the rise as there is increasing demand for containers from Asia for export shipments to Europe and the US since the lockdown measures in the Western hemisphere caused delays in freight transport, Brandinside reported, citing information from the Shanghai Shipping Exchange.

“With this scenario anticipated, the central bank could cut its policy rate by 25 percentage points in the first quarter to support the economic recovery momentum,” said Ms Thanyalak.

The MPC has enough policy space to lower the policy interest rate in case there are signs indicating downside risks for Thailand’s economic recovery, she said.

The seven-member rate-setting panel previously cut the benchmark interest rate by three times this year, with a 25-basis-points reduction each time, to an all-time low of 0.5% to mitigate the adverse effects from the pandemic.

The committee will monitor the adequacy of the government’s measures and various risks, including domestic political uncertainties, the progress of protocols for admitting foreign tourists and financial positions of businesses and households, in deliberating monetary policy going forward, according to the latest MPC edited minutes.

The central bank is also expected to use other targeted policies to support the economic recovery momentum and ease the financial burden of borrowers both for businesses and consumers, said Ms Thanyalak.

These include the soft loan scheme, debt relief measures and a reduction in financial institutions’ contributions to the Financial Institutions Development Fund from 0.46% to 0.23%, she said.

Fiscal stimulus should help support an economic recovery impetus, said Ms Thanyalak.

K-Research forecasts the Thai economy to expand by 2.6% next year, a recovery from a 6.7% contraction projected for this year.

For the estimated range of next year’s GDP growth, the think tank predicts a wide range of 0-4.5% because of an uneven recovery, said assistant managing director Nattaporn Triratanasirikul.

The government sector will remain key in shoring up economic growth, assuming state investment growth of 6.1% and public consumption growth of 4%, said Ms Nattaporn.

Source: https://www.bangkokpost.com/business/2032155/mpc-may-cut-rate-on-shaky-recovery