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Thailand to Hold Rate as Spending, Baht in Focus: Decision Guide

Suttinee Yuvejwattana
·3 min read

(Bloomberg) -- Thailand’s central bank is set to keep benchmark interest rates unchanged at a record low as the focus on reviving the economy shifts toward fiscal policy and stemming a recent rally in the currency.

All 20 economists in a Bloomberg survey expect the Bank of Thailand to keep its key rate at 0.5% on Wednesday, after lowering it by 75 basis points earlier this year.

Governor Sethaput Suthiwart-Narueput, who will be overseeing his first rate-setting meeting, said last week it may take time and targeted fiscal measures to overcome the Covid-19 crisis, while the government has been nudging the bank to cool the baht’s rise. Thailand’s economy has shown some encouraging signs as the decline in gross domestic product last quarter beat estimates. Still, ongoing political protests and the surging currency pose risks to the fragile recovery.

“The Bank of Thailand will likely keep its monetary policy accommodative as domestic demand gradually recovers,” said Ju Ye Lee, a Singapore-based economist at Maybank Kim Eng Research. “The better-than-expected GDP performance in the third quarter does not warrant further easing given the lack of monetary policy space for Thailand.”

Here’s what to watch for in Wednesday’s decision:

Baht Concerns

The central bank will likely reiterate its concern that baht strength could hinder the recovery and that the bank needs to weigh additional measures to restrain it. The baht has gained 3.4% against the U.S. dollar over the past month as foreign inflows resumed into local stocks and bonds, trimming its decline on the year to 0.6%.

“Besides some verbal intervention to calm baht bulls, the central bank might reiterate plans to ease overseas investment rules, which has been set for early 2021,” said Radhika Rao, an economist at DBS Group Holdings Ltd. in Singapore. “Any policy rate-related response is unlikely, with current levels already at record lows and diminishing utility for the currency from further easing.”

The government wants the central bank to temper the baht rally, which has driven the currency to 10-month highs against the dollar, threatening exports. Thai Finance Minister Arkhom Termipittayapaisith said Monday he’d discuss with the central bank what measures might be needed to restrain the currency.

Growth Forecast

Due to review its 2020 growth forecast next month, the central bank may give some indication Wednesday of whether it intends to alter its current prediction that GDP will contract 7.8% this year. Earlier this week, the state planning agency raised its forecast to a 6% drop, which would mean the Thai economy performed better in 2020 than during the 1998 Asian financial crisis. The Finance Ministry has indicated it will revise its own GDP forecast in January.

Data Monday showed GDP shrank 6.4% in the third quarter compared to a year earlier, recovering from the 12.1% contraction at the peak of the outbreak. Almost all of Thailand’s economic indicators other than tourism improved in the third quarter, according to the National Economic and Social Development Council, with government spending expected to remain the main driver of growth into 2021.

Seeking to boost local demand, Prime Minister Prayuth Chan-Ocha has spent hundreds of billions of baht in cash handouts and stimulus measures from a 1.9 trillion-baht ($63 billion) economic package.

Fiscal Calls

With the benchmark rate already so close to zero, the central bank has said fiscal policy must take the lead in driving further recovery.

Government policies “needed to be more targeted and timely. Such policies should continuously promote employment, economic restructuring, and economic recovery,” the bank said at its last meeting. The government “should emphasize on supply-side policies to support the changing economic structure, patterns of business operations, and labor skill development consistent with the post-Covid environment in order to ensure a sustained economic recovery.”

Analysts will be watching for any refinement of that message Wednesday.

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