● Policy rate maintained at a record-low of 1.25%, in line with expectation

- Unanimous vote from its seven-member Monetary Policy Committee (MPC).

- Overall in 2019, the Bank of Thailand (BoT) executed two rate cuts of 25 basis points (bps) each.

● Growth forecast slashed, but expectations for a faster expansion in 2020 remained, amid stabilising global activity (2019: 2.5%, 2020: 2.8%; previous forecast: 2019: 2.8%, 2020: 3.3%)

- Deeper decline in exports and a projection of slower recovery amid trade tensions and structural changes in the manufacturing sector.

- Domestic demand outlook tapered as private consumption is expected to dwindle on lower household income and employment. Public expenditure and private investment to be weighed by delays in the enactment of fiscal 2020 budget.

● Inflation outlook lowered to further below the target range of 1.0-4.0% (2019: 0.7%, 2020: 0.8%; previous forecast: 2019: 0.8%, 2020: 1.0%)

- On continued weakness in energy prices, amid subdued global economic growth and increasing energy supply.

- In contrast, the BoT’s core inflation outlook switched from “to moderate owing to subdued demand-pull inflationary pressures” to “would gradually increase in line with the improving economic outlook”.

● Thai Baht’s precipitous appreciation against trading partners’ currencies remained a concern

- Following the relaxation of capital controls, the currency moved both directions, but became more in line with regional currencies. This necessitates BoT’s commitment in employing mitigation measures.

● Despite showing slight optimism on global economic activity, we foresee the BoT to resume its monetary easing in the 1Q20 if domestic growth condition turns bleak

- The re-insertion of “the Committee would stand ready to use policy tools as appropriate” in the statement and the slash in GDP forecast suggest that the BoT sticks to its dovish monetary stance.

- Combined with recent slew of weak economic indicators (e.g. manufacturing production, public expenditure), the probability of one rate cut of 25 bps in the 1Q20 has increased.

Source: Kenanga Research - 19 Dec 2019