• Bangko Sentral ng Pilipinas (BSP) kept its policy rate at a record-low of 2.25% in its August monetary policy meeting.
• Bank Indonesia (BI) in its August monetary policy meeting decided to maintain its policy rate at 4.0%
• Thailand’s economic growth in 2Q20 contracted sharply for the second consecutive quarter by 12.2% yoy compared to a decline of 1.8% in 1Q20.

More emphasis to be placed on fiscal stimulus in Philippines and Thailand

Bangko Sentral ng Pilipinas (BSP) left its key policy rate at a record-low of 2.25% in its August monetary policy meeting following four consecutive rate cuts since February 2020. Since the start of the year, BSP has lowered its policy rate by a total of 175bps. BSP guided that its decision to pause its rate cuts is “to fully work their way through the economy, even as the national government continues to implement measures to bolster economic activity”. We anticipate BSP to likely continue its pause on rate cuts in the coming months as more emphasis may be placed on fiscal measures. So far, the government has launched a fiscal package worth PHP595.6bn accounting for about 3.1% of GDP and recently on August 20, a Philippine congressional committee had approved a stimulus package worth PHP165bn to further support the country’s economic recovery.

Meanwhile, Bank Indonesia (BI), in its August monetary policy meeting, decided to maintain its policy rate at 4.0% after lowering it by 25bps in June from 4.25%. This was in line with market expectations of no rate cut. To date, BI has cut 100bps this year. BI guided that its decision was to maintain external stability amidst the expectations of low inflation. BI also emphasized on the provision of liquidity to promote economic recovery from the impact of Covid-19 pandemic. Moreover, BI also guided that it will monitor the dynamics of global economy and financial markets and the impact of Covid-19 to the Indonesian economy, as they stand ready to take necessary steps if needed. Following a GDP growth contraction in 2Q20 of 5.3% yoy (+3% in 1Q20), we believe there is a possibility for BI to lower rates further to support growth, especially if recovery is slower than anticipated. The continued rise in Covid-19 cases in Indonesia also adds to uncertainty over the pace of recovery especially if lockdown measures are re-imposed. However, the weak Rupiah against the US Dollar, which has depreciated by around 6.5% year-to-date, will remain a policy concern for BI.

Separately, Thailand’s economic growth contracted sharply for the second consecutive quarter by 12.2% yoy in 2Q20 compared to a decline of 2% in 1Q20. It was the biggest fall since the 1998 Asian Financial crisis. The sharp contraction in real GDP growth was due mainly to the halt of trade and tourism sectors. This was reflected in the sharp decline in exports, private consumptions and private investment. The National Economic Social Development Council (NESDC) revised lower its GDP outlook between -7.3% and -7.8% this year (from its previous range of -5% to -6%) mainly due to the sharp decline in number and revenues from foreign tourists, slowdown in global economy and trade, impact of the pandemic and the drought condition. As Bank of Thailand (BOT) has reduced policy rate by a total of 75bps to an all-time low of 0.5% since early 2020, we believe there is limited room to cut rates further, but need to rely on government spending to support growth

Source: Affin Hwang Research - 21 Aug 2020