Thailand: BoT surprises market with rate cut

  • The Bank of Thailand stunned the market on 7 Aug 19 by following the lead of other major central banks with a 25-basis-point rate cut, the first rate decrease since 2015.
  • The Monetary Policy Committee (MPC) voted 5-2 to cut the benchmark rate from 1.75% to 1.5%, akin to the previous level before the rate-setting panel hiked the interest rate in Dec 18.
  • The committee assessed that the economy would expand at a lower rate than previously projected because of a contraction in merchandise exports that started to affect domestic demand, said MPC secretary Titanun Mallikamas.
  • “The policy rate is not entering a downward trend,” he said. “The MPC’s consideration is still based on data.”
  • “Financial stability risks have already been addressed to some extent, although there remain pockets of risks that warrant monitoring,” Mr Titanun said. “A more accommodative monetary policy stance would contribute to the continuation of economic growth and should support the rise of headline inflation towards the target.”
  • On the other hand, two MPC members viewed a rate cut as unnecessary under the existing relaxed monetary policy, reckoning that there remained a need to preserve policy space.
  • Thailand’s economic growth is projected to expand at a lower rate than previously assessed based on an export contraction that has subsequently taken a toll on domestic demand.
  • Public expenditure is anticipated to expand at a slower pace because of constrained budget disbursement and an expected delay in the enactment of the FY20 budget expenditure, Mr Titanun said.
  • Despite domestic financial stability remaining sound, the MPC will monitor rising household debt, growth in assets held by saving cooperatives and the financial leverage of large corporations, he said.

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