Thailand’s central bank kept its benchmark interest rate unchanged and lowered its economic growth forecast for this year and next as the country grapples with its biggest wave of Covid cases yet.
The Bank of Thailand held the policy rate at a record low of 0.5% for a ninth straight meeting in a unanimous decision, as expected by all 25 economists in a Bloomberg survey.
The country’s vaccination campaign will be key to economic recovery, Bank of Thailand Assistant Governor Titanun Mallikamas said at a briefing in Bangkok. Any rebound in the labour market will be slower than in the past, and could be W-shaped – rather than a smooth return – as the market is more fragile now.
The bank’s rate-setting committee “is ready to use limited policy space at the most effective timing,” Titanun said. “Loans and debt restructuring will be more targeted to help businesses and households than lowering interest rates.”
The central bank trimmed its forecast for 2021 gross domestic product growth to 1.8%, from 3% previously, citing the precipitous decline in tourism during the pandemic. The government plans to fully reopen Thailand’s borders to foreign visitors in October, taking a calculated risk to boost the economy.
Markets were little changed after the decision, with the baht down 0.4% against the dollar on the day, while the benchmark stock index held gains of 0.3%.
Prime Minister Prayuth Chan-Ocha this week moved to allow more social activity in the capital, even as Covid-related fatalities rose to a record yesterday. About 11% of the population had received at least a first vaccine dose as of June 21.
Thailand’s urgency in reopening stems from its reliance on tourism, which contributed about one-fifth of economic output before the pandemic. The Cabinet on Tuesday gave final approval for the Phuket “sandbox,” which will allow quarantine-free travel for vaccinated visitors to the popular tourist island from July 1.
The central bank’s GDP downgrade follows similar moves from the finance ministry and the country’s main economic planning agency. The government on June 1 approved fresh economic stimulus measures worth 140mn baht ($4.4bn), including cash handouts and co-payment programmes. Parliament this month approved a $16bn borrowing plan to meet fiscal needs.
The central bank earlier had announced a limited debt moratorium until year-end to help small and medium-sized businesses hurt by the outbreak. It will decide later this year whether to extend lenders’ obligatory contribution to a bailout fund for financial institutions.
“The poor prospects for the economy mean that monetary policy will need to remain loose for a long time to come,” Gareth Leather, senior Asia economist at Capital Economics Ltd., wrote in a research note after the decision. “Our forecast is that the policy rate will remain unchanged until the end of 2022.”
Other key points from yesterday’s briefing: The central bank cut its 2022 GDP forecast to 3.9%, from 4.7% expected in March.
Forecast for tourist arrivals this year, already cut repeatedly, is lowered again to just 700,000, from 3mn previously expected. The bank projects 10mn tourists next year, less than half the previous forecast.
The bank says the baht, down 6% against the dollar this year, is weaker than other regional currencies.
The bank expects headline inflation of 1.2% this year and next. The bank forecasts a current-account deficit of $1.5bn this year, compared to a $1.2bn surplus predicted earlier.