Thailand's central bank maintains policy rate at 1.25%

It will likely remain on hold in 2020, although a 25bp cut remains probable.

The Bank of Thailand (BoT) has decided to maintain its benchmark policy rate at 1.25%, in line with market expectations, reported HSBC Global Research.

The Monetary Policy Committee (MPC) reportedly voted unanimously to keep the rate on hold. MPC also gave gave significant focus on curbing the Thai Baht (THB) strength in the press conference.

“Concerns regarding THB strength and further assessment of recently implemented measures to induce capital outflows were more prominent at today's meeting than concerns regarding growth or inflation,” noted HSBC economist Noelan Arbis.

BoT also cut its 2020 growth forecast down to 2.8% from an earlier 3.3%, although they expressed optimism that the "Thai economy is expected to perform better next year than this year.” Thailand is projected to post a 2.5% economic growth for 2019.

Arbis added that BoT’s rate cut in November may have already factored in its lower growth and inflation outlook for 2020.

“Assistant Governor Titanun Mallikamas referred to [the November rate cut] as an "insurance cut" and noted that the MPC is prepared to use additional measures as needed. This would not be entirely surprising, given that the BoT's new forecasts only move it in line with already-held market expectations, including HSBC's,” said Arbis.

HSBC expects the benchmark rate to remain on hold in 2020 given the BoT’s limited room and willingness to ease interest rates further.

“To the BoT's credit, an additional rate cut is unlikely to do much to support GDP growth at the current juncture. Credit growth has already picked up since H2 2019 and is likely to grow faster in the months ahead as the impact of the BoT's recent rate cuts filters through to the economy. Meanwhile, household debt remains elevated and non-performing loans (NPLs) are slowly rising, posing greater risks to financial stability,” added Arbis.

But a further 25bp cut in H1 2020 remains probable depending on domestic conditions during this period, although HSBC does not see the policy rate falling below 1% in the cycle unless there was an outright recession. 

Photo courtesy of Dennis Wong