Thailand holds rate on rebound optimism as restrictions ease

Bloomberg

Thailand’s central bank held its key interest rate unchanged amid optimism that an economic rebound will hold, as Southeast Asia’s second largest economy loosens growth-stifling restrictions and virus cases ease.
The Bank of Thailand voted unanimously on Wednesday to hold one-day repurchase rate at a record-low 0.5% for an 11th straight meeting, as predicted by 19 of 22 economists in a Bloomberg survey. The other three expected a 25-basis point reduction, after two members of rate-setting committee had voted to cut at August meeting.
Thailand is joining other Southeast Asian countries in slowly easing pandemic restrictions as it balances virus-containment measures with steps to revive the economy. The government has promoted a “living with Covid-19” strategy and ramped up its vaccination campaign, followed by a decision to cut the quarantine period, shorten the nightly curfew and allow more businesses to reopen.
The benchmark SET Index of stocks rises as much as 0.4% after the rate announcement, while the baht was little changed after earlier hitting its lowest level in more than four years against the US dollar. The yield on 10-year sovereign bonds was little changed at 1.839%.
While the central bank maintained last month’s forecast for economic growth of 0.7% this year, its tone on Wednesday expressed more optimism. The bank said the economy “would expand close to the projection from the previous meeting,” and raised next year’s outlook to 3.9% growth, from the 3.7% it forecast in August.
The bank said it stood ready to use additional tools if needed, but reiterated that fiscal support would be more effective than cutting the policy rate further. Earlier this month the bank relaxed rules for its low-interest loan program and boosted incentives for banks to encourage debt restructuring.
“The weakness of the economy means interest rates are likely to stay low for some time to come,” Gareth Leather, senior Asia economist at Capital Economics Ltd., wrote in a research note after the decision. “We are taking out the rate cut we originally had penciled in for this year. But the poor state of the economy means rate hikes are a long way off.”
Earlier this month the government raised the public debt-to-GDP ratio to 70% from 60% to allow for higher state borrowing to fight the outbreak. The Cabinet also approved a public debt management plan for the fiscal year starting Oct. 1, which includes 1.34 trillion baht ($39.7 billion) in new borrowing mainly to finance the budget deficit, government investments and virus-related projects.
Finance Minister Arkhom Termpittayapaisith said Wednesday that monetary policy should remain accommodative and in sync with fiscal policy. Policies must be “out of the book” during the current situation, he told a virtual conference, adding the government will unveil more measures to help small businesses and boost local consumption.
“While reopening plans have yet to show clear results, they may have bought time to wait on a rate cut,” said Tim Leelahaphan, an economist at Standard Chartered Bank Plc. “We may reinstate our rate-cut call if the economy worsens significantly from here (not our base case).”