MNI INSIGHT: Bank of Thailand Sees Toolbox Emptying

Thailand's central bank sees limited policy options left in its toolbox and is reluctant to cut interest rates further as the baht weakens, preferring to rely on its debt relief program and government fiscal measures to support the sluggish economy, MNI understands.

With the baht trading at a-near-12-month weak point of THB34.05 to the U.S. dollar, the central bank believes its main role now is underpinning the currency while the government does the heavy lifting towards recovery.

The Bank of Thailand left rates unchanged at a record low 0.5% following the June policy meeting, despite slashing growth forecasts for the economy. It expects GDP to grow 1.8% in 2021 and by 3.9% in 2002. This was a significant downgrade from previous forecasts of 3.0% this year and 4.7% next.

Thai Baht vs U.S. Dollar- 12-month chart

Source: Bloomberg

The BOT view is that lower official rates are unlikely to stimulate the economy further and would only undermine the currency and potentially fuel inflation, which at 2.4% is already in the upper half of the 1-3% target range .

The central bank has already announced a THB250 billion soft loan scheme, and the government has recently borrowed another THB500 billion for its own programs.

TOURIST TRAP

As few as 700,000 tourists could visit Thailand this year, down from seven million in 2020 and just under 40 million in 2018, when their spending represented 11% of total GDP.

Personal debt level is equivalent to almost 90% of GDP, an 18-year high, , and MNI understands the BOT is considering a government request that it review interest rates on credit cards and personal loans, something it is able to do without impacting its benchmark rate.

The BOT is aware, however, that the impact of such a move could be minimal. While it has the power to set ceilings for these rates, market rates are already at lower levels. For example, the ceiling set for car loans is 24% but some providers offer loans at 18%.