BoT Lowers Growth Forecasts, Dissenters Vote For A Cut

The Bank of Thailand on Wednesday voted 4 to 2 to leave benchmark policy rate unchanged at the record low of 0.5%, with one MPC member absent. The two dissenters voted to cut the policy rate by 25bp. This was the first meeting since June 2020 when the Committee's decision was not unanimous.

• The language of the statement turned more dovish, with the MPC noting that "the Thai economy in 2021 would be affected by the COVID-19 outbreak more than expected with significant downside risks".
• The MPC flagged that "most members viewed that financial measures would be more effective than a further reduction in the policy rate which was already low," but "two members voted to cut the policy rate to support other measures in shoring up the economy and mitigate heightened risks".
• The Committee revised their GDP forecasts for 2021 and 2022 to +0.7% Y/Y and +3.7% respectively from +1.8% and +3.9% in the June Monetary Policy Report. The updated outlook for 2021 is more pessimistic than the +1.3% projected by the MoF and BoT survey of experts.
• In response to media questions, Asst Gov Titanun said that the BoT will make sure that the baht does not become an obstacle for the business sector, while QE is not the right tool for the economy as Thailand does not face liquidity shortage.
• Several desks noted that the risk of a rate cut has increased, with Goldman Sachs expecting the BoT to be one of the slowest central banks to start the tightening cycle. UOB said they can't rule out a 25bp cut by the year-end, while Capital Economics have pencilled one in.
• The edited minutes from the meeting, due August 18, may expose specific points of contention among policymakers.
• Click here to see a STATE OF PLAY piece on the BoT's latest decision from our Policy Team.

Fig. 1: BoT August vs. June GDP Forecasts

Source: BoT