MNI STATE OF PLAY: Thai CENBANK Steady In Split Vote

Thailand's central bank kept its benchmark interest rate unchanged at the record low of 0.5% at today's meeting, but the split decision of the Monetary Policy Committee was the first since the last rate cut in May 2020.

The Bank of Thailand vote was 4 to 2 to keep rates on hold, with the dissenters advocating a 25-basis point cut to help stimulate an economy still struggling with the impact of the pandemic.

GROWTH FORECAST CUT

The bank also further downgraded its 2021 growth forecast to 0.7% from the 1.8% forecast in June, with the 2022 forecast now at 3.7% against 3.9% previously.

Earlier this year the forecast was for 3.0% for 2021 and rising to 4.7% in 2022.

Key to the downgrade is the ongoing border closure, which has slashed tourist numbers.

In 2019, Thailand welcomed 39.8 million tourists, but the BoT now believes that only 15,000 tourists will arrive in the kingdom this year.

THAI BAHT WEAKER

The faltering economy is continuing to have an impact on the Thai baht, which pierced the level of 33 to the USD today after beginning the year at around THB30.

A level of THB32 to the USD has been considered by both the BoT and the Finance Ministry as being the optimal rate for the economy.

Policymakers face a dilemma that any more monetary stimulus would further undermine the baht.

In today's statement, the BoT noted that the baht had depreciated more than other regional currencies against the USD "owing to domestic factors."

POLICY CHOICES LIMITED

With rates at a record low, the BoT has limited options in terms of conventional monetary policy, and has turned to other more targeted measures such as the recent USD11.2 billion program of soft loans and a debt scheme to prop up businesses until tourists return as highlighted by MNI on July 2, MNI INSIGHT: Bank Of Thailand Sees Toolbox Emptying.

It has also looked to fiscal policy to do the heavy lifting.

Last week the BoT released data showing that private consumption remained weak, although exports had supported the economy as had public spending.

On a positive note, inflation has receded as an issue of concern with the headline figure declining in June.