● Policy rate maintained at a record-low of 0.75%, after slashing itby 25 basis points(bps)at a special meeting on 20 March, in line with house expectation

- 2 members dissented, voting for an additional 25 bps rate cut, while 1 member was absent.

- Market was split between a cut (10 respondents) and status quo (9).

● Amplified pessimism: BOT expects a sharp contraction in GDP for 2020 (-5.3%; previous forecast: 2.8%; 2019: 2.4%), before a modest recovery in 2021 (3.0%)

- It would be the worst contraction since the Asian Financial Crisis (1998: -7.6%).

- Coronavirus pandemic, growth slowdown of major trading partners and supply chain disruption to exert significant pressure on the economy, especially for tourism industry and external trade.

- Domestic demand, specifically private investment and consumption, to drop as incomes of firms and households are increasingly affected.

● Headline inflation projected to decline (-1.0; previous forecast: 0.8%; 2019: 0.7%)

- The government’s declaration of a 1-month emergency starting from 26 March, will result in tightened movement restrictions, weighing on business and consumption activities, consequently resulting in subdued demand-pull inflationary pressure.

- Energy prices to remain pressured amid tepid global demand and ongoing oil price war between Saudi Arabia and Russia.

● The BoT left the door open for further easing, with emphasis on the importance of measures to alleviate liquidity strains

- BoT’s readiness “to use additional policy tools in an appropriate and timely manner”suggeststhat the BoTwould actpromptly depending on latest development of the rapidly evolving pandemic, potentially embarking on a 25 bps rate cut at the May’s MPC meeting or at another special meeting.

- We also foresee further measures to inject liquidity into the market, on top of the various debt relief measures announced recently. These would complement other fiscal measures, providing the households and firms with ample breathing space in this challenging economic episode.

Source: Kenanga Research - 26 Mar 2020