MNI STATE OF PLAY: Recovery Uncertain As Thailand CB Meets

The emergence of the Omicron variant has introduced fresh uncertainty into the outlook for Thailand’s central bank as the Monetary Policy Committee meets this week to consider interest rate settings.

While no change is expected to the record low rate of 0.50% for the one day repurchase rate at the meeting on Wednesday, the Bank of Thailand’s earlier optimism on the economic recovery has been thrown into doubt by the resurgent pandemic.

The bank’s previous assessment that the economy had “bottomed out” and had entered a recovery phase has driven the recent outlook, helped by benign inflation, strong exports and a stable baht, see: MNI STATE OF PLAY: Thai CB Wary Of Baht Volatility.

The baht has weakened in the last two weeks, however, to around 33.6 against the USD after beginning 2021 at just under 30.

GOVERNOR'S REMARKS

In a speech last week, BOT Governor Sethaput Suthiwartnarueput said domestic considerations would dictate interest rate deliberations rather than external policies such as those of the US Federal Reserve.

Sethaput said that while he did not see Thailand as vulnerable to tapering by the Fed, the outlook for 2022 remained uncertain.

DATA POINTS

Inflation is currenting running at around 1.2% and is tipped to reach 3% next year, the upper range of the Bank of Thailand’s target range.

While exports are strong and industry has been boosted by a new USD900 million investment by the Ford Motor Company, household debt is high and remains an ongoing problem and puts demand at risk from rising rates. Thailand has traditionally sourced just over 10% of its GDP from the tourism industry, but the spread of the Omicron variant threatens to undermine earlier assessments on the pace of the recovery.

The BoT is estimating GDP growth of 0.7% this year and previously forecast 3.9% for 2022, but Sethaput said this could now be between 2.8% and 3.5% if Omicron continues to impact on travel. Where 40 million foreign tourists visited Thailand in 2019, the figure this year is expected to be under 400,000.

The BoT has left rates unchanged for its previous 12 meetings, although two members advocated a rate cut in August.