Bank of Thailand policy rate cut to new record low

February 5, 2020

BANGKOK - In a unanimous decision, the Bank of Thailand (BoT) today lowered its policy rate by 25bps to a new record low of 1.00% to support growth. The central bank provided few clues on its next move, other than mentioning that the impact of the coronavirus outbreak, drought and budget bill are the key factors it is monitoring.

ANZ Bank says it expects the BoT to adopt a wait-and-see stance for now, but acknowledges that a further rate cut cannot be ruled out, especially if the virus spread is prolonged and fiscal policy continues to be handicapped by legal bottlenecks.

Today's cut marks the third in the BoT's current easing cycle. Unlike the previous two cuts in August and November 2019, which saw two dissenters each, today's decision was unanimous.

ANZ says an accompanying statement flagged significant downside risks to BoT's 2020 growth projection (2.8%) amid the novel coronavirus outbreak, delay in the budget bill, and drought.

"For our part, we recently downgraded our own forecast materially, to 2.3%, given the recent developments, the ANZ report says.

Assistant BoT Governor, Titanun Mallikamas, told media that the rate cut was aimed at boosting liquidity and supporting debt restructuring.

Looking ahead, the BoT signalled that the impact of the novel coronavirus outbreak, drought and budget bill are key factors that the monetary policy committee would monitor in deliberating monetary policy.

ANZ says: "With conventional policy space diminishing, the bar for a further rate cut will be high, in our view.

"Should there be signs suggesting that implementation of the FY2020 budget could start by April, we suspect the BoT will be more inclined to keep its policy rate on hold and leave fiscal policy to take the lead in bolstering economic activity.

"However, should there be a prolonged spread of the virus (beyond Q1 this year) or an extended delay to implementation of the FY2020 budget, pressure on the BoT to act again would rise. (ATI).