● Bank of Thailand (BoT) slashed policy rateby 25 basis points (bps) to a newlow of 0.50%, in line withhouse and market expectations.

- Aimed at ameliorating the economic fallout from COVID-19 and reinforcing the fiscal, financial, and credit measures.

- 3 out of 7 members dissented, voting for the policy rate to be maintained at 0.75%.

- Thus far, the BoT has cut the policy rate thrice, by a total of 75 bps in 2020.

● BoT expects the GDP to “contract more” than initial forecast of -5.3% (2019: 2.4%)

- Attributable to a worse-than-expected slump in external demand, affecting tourism and goods exports, and private sector expenditure, reflecting rising unemployment and side effects of the containment measures.

● Headline inflation projected to dwindle at faster pace than previous assessment of -1.0% (2019: 0.7%)

- Due mainly to lower energy prices, amid massive glut in the global oil market as business and consumer activities were disrupted by the movement restrictions.

- Recent appreciation of THB against the greenback and regional currencies is also highlighted as aconcern, noting that it could weigh on the momentum of economic recovery.

● Financial stability condition shifted from “sound” to “more vulnerable”

- Underscored by risk of worsening debt service capability of borrowers once the liquidity support measures taper down.

- BoT emphasises the importance of acceleration in debt restructuring and credit extension.

● The BoT left the door open for further easing

- BoT reiterated its readiness “to use additional appropriate monetary policy tools if necessary”.

- However, we view that the BoT would pause on further easing backed by its statement that it would monitor the adequacy of the previously deployed measures and given the favourable COVID-19 development domestically. In addition, the tight split in vote count (4 vs. 3) indicates that a move for additional rate cut might easily tilt to a pause in rate cut at the next MPC meeting in June.

Source: Kenanga Research - 21 May 2020