OVERVIEW

● Policy rate maintained. Bank of Thailand (BoT) kept its policy rate unchanged at 1.75% for the fourth 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 7 August.

● Growth to expand at a slower pace compared to initial assessment (2019: 3.3%, 2020: 3.7%; previous forecast: 2019: 3.8%, 2020: 3.9%). In its statement, BoT opined that this was attributable to a “significantly” weaker-thanexpected exports (0.0%; previous forecast 3.0%), against the backdrop of global economic slowdown and escalating US-China trade tensions. BoT also tapered down its growth expectation for the tourism sector, underscored by faltering tourist arrivals from China, its largest source of tourists. Of note, BoT seemed to indicate that the slowdown in external activities has seeped into the domestic front, “with signs of moderation in earnings and employment in the export-related manufacturing sectors”, restraining expansion of private consumption. Similarly, public expenditure and investment will weaken further, due in part to an expected delay in the enactment of the fiscal 2020 budget amid a likely contentious process of passing bills in the House of Representatives, in which the 19-party coalition government only has a four-seat majority.

● Inflation to register 1.0% growth in 2019, unchanged from previous assessment. BoT’s view of a subdued inflationary pressure remained intact, with the index expected to register at the lower-end of its target range of 1.0- 4.0%.

● Thai Baht’s precipitous appreciation and potential misalignment with economic fundamentals a concern. BoT showed concerns over the rapid appreciation of the THB, which has strengthened by 5.2% YTD, emerging as the best performing currency in the region, supported by relative weakness of the USD amid widening speculations of a policy rate cut by the Fed. The emphasis on this issue may suggest that the BoT is considering to adopt intervention measures in trying to curb excessive appreciation of its currency.

● BoT provided more dovish guidance, acknowledging bleak economic outlook ahead. Apart from the looming domestic political risk, enhanced dovish rhetoric portrayed by the BoT through its reduction of key forecast figures suggest that the central bank will keep its monetary policy accommodative throughout the year. Nonetheless, we do not foresee a rate cut for the rest of the year, given limited policy space and continued resilience in the private consumption activities.

Source: Kenanga Research - 27 Jun 2019