Bank of Thailand Leaves Its Policy Rate at 0.5%

• Despite the decision to leave its policy interest rates unchanged at current level, BOT guided that it would stand ready to use additional appropriate monetary policy tools if necessary. This signals that BOT remains cautious on economic outlook.
• Thailand’s exports growth contracted for the fourth straight month by 7.9% yoy in August from -11.4% in July.
• In Singapore, core-inflation contracted by 0.3% in August from -0.4% in July, mainly due to the smaller decline in cost of electricity & gas as well as costs of services, retail and other goods.

More Emphasis to be Placed on Fiscal Stimulus in Thailand

Bank of Thailand (BOT) kept its policy rate unchanged at 0.5% in the latest MPC meeting, but guided that it would stand ready to use additional appropriate monetary policy tools if necessary. The BOT has cut its policy rate five times this year with a total of 125 basis points to support the economy. BOT noted that the economy would contract less than the previous forecast, revising its GDP growth projection from -8.1% to -7.8% for 2020. However, BOT lowered its projection for 2021 to 3.6% from 5% previously, citing dim expectations on tourism revival. BOT believes that overall economic activities in the country would take at least 2 years before it returns to pre-pandemic level. BOT also revised its inflation forecast from -1.7% to -0.9% for 2020 and from 0.9% to 1% for 2021. Going forward, BOT expects government policies (such as fiscal stimulus measures) to remain supportive in restructuring and support economic recovery, especially with current low interest rate. We expect BOT to leave its policy rate unchanged at 0.5% throughout 2020, unless domestic economy slows sharply. BOT cautioned it would monitor risks of the second wave of the outbreak.

In the same week, Thailand’s exports growth contracted for the fourth straight month by 7.9% yoy in August from -11.4% in July. Imports growth fell by 19.7% yoy in August compared to -26.4% in July. As a result, the trade surplus widened to US$4.34bn from US$3.3bn in July. The slower pace of contraction in exports during the month reflects some gradual improvement, as other countries have also been gradually reopening their economies and easing containment restrictions. However, downside risks still remain for the tourism-reliant economy especially in terms of tourist arrivals and receipts as Thailand’s borders remain closed, while weaker global growth may also weigh on external demand for the country’s exports.

Singapore’s headline inflation rate remained in the negative territory for the sixth straight month, declining by 0.4% yoy in August (the same rate of contraction in July) due to decline in cost of private transport, but offset by the moderate decline in core inflation. Core-inflation, which excludes cost of accommodation and private transport contracted by 0.3% in August from -0.4% in July, mainly due to the smaller declines in cost of electricity & gas as well as costs of services, retail and other goods. In a joint statement by Monetary Authority of Singapore (MAS) and Ministry of Trade and Industry (MTI), external and domestic sources of inflation are likely to remain subdued due to weak global demand conditions. Both the headline and core-inflation are projected to average between -1% and 0% in 2020.

Source: Affin Hwang Research - 24 Sept 2020