● Policy rate slashed by 25 basis points (bps) for the second time, matching a record-low of 1.25%, in line with expectation

- Two of the seven members of the Monetary Policy Committee (MPC) dissented, voting to keep the policy rate unchanged, citing concerns on heightened financial stability risks and to preserve the limited policy space.

● Growth to expand at a slower pace compared to initial assessment, further below potential

- Attributable to a deeper decline in exports and a projection of slower recovery amid trade tensions.

- Domestic demand outlook tapered as the Bank of Thailand (BoT) foresees private consumption to soften further due to sharp decline in employment, in spite of the fiscal stimulus.

- Elevated risks in the near term, arising from trade tensions, China and advanced economies’ growth outlook, as well as geopolitical risks.

● 2020 inflation outlook switched from “to increase” toward the target range of 1.0-4.0% to “to be below the lower bound of the target”

- Due to expectation of further weakness in energy prices, partly influenced by elevated geopolitical concerns, as well as the lack of demand-pull pressure.

- Year-to date, the consumer price index has eased to 0.7% YoY (2018: 1.1%).

● Relaxation of regulations on capital outflows announced to stem Thai Baht’s precipitous appreciation against trading partners’ currencies

- Measures include allowing exporters to keep foreign currency proceeds overseas, allowing retail investors to invest in foreign securities without going through a Thai intermediary institution and businesses and individuals to transfer funds abroad more freely.

- Further mitigation measures could be adopted should future exchange rate developments warrant it.

● Monetary easing to be paused, but with continued monitoring

- The removal of “the Committee would stand ready to use policy tools as appropriate” from the statement suggests that the BoT does not plan a third rate cut in at its next and final MPC meeting for 2019 on 18 December, keeping the policy rate at 1.25% by year-end.

- Nonetheless, further easing in 2020 is not out of the picture should economic growth and external development, specifically those pertaining to the trade war, disappoint.

Source: Kenanga Research - 7 Nov 2019