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MNI BoT Preview - May 2021: Third Wave Weighs On Outlook

The BoT are expected to hold steady and let fiscal policy do the heavy lifting, but may downgrade its economic forecasts amid a surge in Covid-19 infections.

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MNI Point of View: Third Wave Weighs On Outlook

  • Although the rapid resurgence of Covid-19 infections has put Thailand's economic recovery and tourism reopening plans at risk, we expect the Bank of Thailand to stand pat on rates Wednesday, as further policy loosening at this point would bring little benefit. However, the odds are high that the BoT will follow in the footsteps of fiscal authorities and downgrade their economic forecasts as the third wave of coronavirus bites.
  • The increase in new Covid-19 cases picked up in April, leading to Thailand's worst outbreak of the disease since the beginning of the pandemic. The country's health authorities suggested that the latest wave of infections has already passed its peak, but they were forced to implement new restrictions nonetheless.
  • The Finance Ministry revised their economic projections accordingly and now see domestic GDP growth at +2.3% Y/Y this year (vs. +2.8% forecast in January and +4.5% forecast in October), while lowering expectations of foreign tourist arrivals to 2mn. Their downgrades came on the heels of downward revisions to the projections of the National Economic and Social Development Board (NESDB) and downbeat rhetoric from the BoT.
  • Therefore, the BoT will most likely use the upcoming meeting to join the government and NESDB and slash economic projections for this year, so that they reflect the impact of the third wave of coronavirus. As per the March statement, the BoT expected GDP to rise 3.0% Y/Y in 2021 and 4.7% Y/Y in 2022, while minutes from the March meeting revealed that the Bank's worst-case scenario is a 1.7% Y/Y contraction.
  • With the benchmark interest rate already at or close to its effective lower bound, the MPC is widely expected to leave monetary policy parameters unchanged on Wednesday. Policymakers will likely continue to focus on targeted macroprudential measures, while leaving the heavy lifting to fiscal policy.

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MNI BoT Preview May 2021.pdf