MNI STATE OF PLAY: Thailand CB Banks On Recovery In Rate Views

Thailand's central bank is looking to an economic recovery as international tourists return and businesses re-open, putting on hold the immediate need for more accommodative monetary policy.

At its meeting on Wednesday, the Bank of Thailand is expected to leave the one day repurchase rate unchanged at 0.50%, a decision which is likely to have the unanimous support of the Monetary Policy Committee, see: MNI INSIGHT: Thai CB Holds, Eyes Fed And Baht As Tourists Return.

Two members of the committee advocated a 25-basis point rate cut at the August meeting to help the economy through the pandemic, but September's decision – in advance of the re-opening – was unanimous as the bank upgraded its 2021 growth forecast to 3.9%.

AN EYE ON THE FED

With the economy re-opening and the baht stabilizing at around 32 to the USD, a rate favourable for exporters, the Bank of Thailand is likely to maintain some policy ammunition for 2022 if the economy and the currency come under pressure if there is a repeat of the 2013 "taper tantrum" which roiled developing markets as the U.S. Fed tightened.

Despite its recent stability the baht is still vulnerable and has been one of the region's weakest currencies so far this year, falling by around 9%.

POLICY TOOLS

Rather than using the policy tool of interest rates recently, the BoT has focused on other measures, such as last month's move to ease loan-to-value ratios for mortgage lending to allow homebuyers to borrow up to 100% of the purchase price.

Also, in October, the bank extended a corporate bond stabilisation fund for another year to the end of 2022 to support businesses impacted by the pandemic.

The Thai government has also been active in fiscal policy, approving the distribution of another USD1.63 billion to low-income earners, the elderly and people with disabilities. This came from a USD16 billion loan the government took out earlier this year.