• Bank of Thailand (BOT) kept its policy rate unchanged at a low of 0.5% in the latest MPC meeting
   
• Asean manufacturing Purchasing Managers’ Index (PMI) rose for the fourth consecutive month from 50.8 in December to 51.4 in January
   
• In Indonesia, headline inflation softened for first time in five months to 1.6% yoy in January from 1.7% in December.

Asean Manufacturing PMI Rose to 51.4 in January, Thailand’s PMI at 49

Bank of Thailand (BOT) kept its policy rate unchanged at a low of 0.5% in the latest MPC meeting, but guided that it would be ready to use additional appropriate monetary policy tools to support the economy, if necessary. The BOT has cut its policy rate three times in 2020 with a total of 75 basis points. Thailand’s real GDP growth contracted by -6.4% yoy in 3Q20, albeit smaller decline than -12.1% in 2Q20. The improvement in 2H20 was attributed partly to the stimulus measures implemented as well as some easing of movement restrictions to control the outbreak of Covid-19. However, going into 2021, BOT guided that recent new wave of the COVID-19 outbreak and the containment measures would affect the Thai economy in the short term. While BOT guided that the impact from recent outbreak will be less severe, the recovery prospect remained highly uncertain. BOT noted that the economic recovery continued to be on track due to government measures and possible export recovery. We believe BOT will likely maintain its policy rate at 0.5% in 1H21, but if economy expand at slower pace than expected, the policy rate may be cut by another 0.25bps to 0.25% in 2H21. In December, BOT revised its 2021 GDP forecast to 3.2% from an earlier estimate of 3.6%, with further downside risk. Recently, the Thai’s finance ministry had also cut its 2021 GDP growth to 2.8% from 4.5%.

Separately, the Asean manufacturing Purchasing Managers’ Index (PMI) rose for the fourth consecutive month from 50.8 in December to 51.4 in January. This was also its quickest improvement since May 2018. IHS Markit guided that the increase in the region PMI reading was driven by increase in new orders since July 2014 as well as fastest expansions of factory production. Among Asean-5 countries, Singapore (55.9), Indonesia (52.2) and Philippines (52.5) registered PMIs above 50 while the PMIs of the Thailand (49.0) and Malaysia (48.9) were below 50 during the month. We believe that the sustained improvement in the region’s manufacturing sector has been supported by the sustained recovery in China’s economy and the optimism among producers, partly due to the rollout of vaccines continuing.

Meanwhile, in Indonesia, headline inflation eased for first time in five months to 1.6% yoy in January from 1.7% in December. The inflation rate was below Bank’s Indonesia’s inflation target of 2-4%. Core inflation rate that exclude volatile food and government-controlled prices, eased to 1.56% yoy (1.6% in December). As the headline inflation remain below BI’s target range in the near term, we believe BI will likely cut its policy rate further from 3.75%, if needed, to support the economy.

Source: Affin Hwang Research - 5 Feb 2021