OVERVIEW

● Policy rate maintained. Bank of Thailand (BoT) kept its policy rate unchanged at 1.75% for the third successive meeting, with a unanimous vote from its seven-member Monetary Policy Committee (MPC), in line with house’s and market’s expectations. The next MPC meeting will take place on 26 June.

● Growth to expand at slower pace compared to earlier assessment. In its statement, BoT opined that this was attributable to weak exports and investment, against the backdrop of global economic slowdown, tech cyclical downturn and prolonged US-China trade war. Similarly, public expenditure will weaken further, in part due to delays in several public investment projects. BoT added that flattening out of employment, particularly in the construction and exportoriented manufacturing sectors, impedes private consumption activities, though it is expected to remain in expansion.

● Inflation to register at the lower-end of BoT’s target range of 1.0-4.0%. BoT’s view of a subdued inflationary pressure remains intact. However, the risk of rising fresh food prices persists in the immediate term, reflecting the impact of drought condition.

● Thai Baht to remain volatile driven by domestic and external uncertainties. Of importance, the BoT highlighted further monitoring required with regards to domestic uncertainties. We believe these include the political gridlock, which Thailand has been facing following its first general election since the 2014 military coup. While the official election committee has endorsed the result of the constituency seats which favoured the pro-Thaksin Pheu Thai Party, it has yet to announce the result for the party-list seats, hindering the process of forming up a coalition government. In this regard, BoT stated that the policy implementation and expenditure plan of the new government have to be monitored as this could affect growth momentum going forward.

● BoT policy stance tilting further towards a dovish bias. Apart from the looming political risk, the dovish rhetoric portrayed by the BoT through its acknowledgement of softer-than-expected growth outlook and subdued inflation may have given the central bank a good reason to shift to a more cautious stance. However, for BoT to cut its policy rate, it takes a sharp and persistent slowdown in economic activity from both the external and the domestic front. For now, we expect BoT’s monetary stance to remain accommodative, but cautiously and gradually leaning towards easing.

Source: Kenanga Research - 9 May 2019