● Policy rate maintained at a record low of 0.50%, in line with house and market expectations

- A unanimous vote from its seven-member Monetary Policy Committee.

- The Bank of Thailand (BoT) described its monetary policy as “extra accommodative”, which combined with the deployed fiscal, financial, and credit measures have helped to weather the impacts from the pandemic and would support the ensuing economic recovery, lift inflation back to the target, and reduce financial stability risks.

● The BoT slashed its 2020 GDP outlook (-8.1%; previous forecast: -5.3%; 2019: 2.4%), but showed optimism towards a recovery in the 2H20 and 2021 (5.0%; previous forecast: 3.0%)

- 2020 GDP downgrade was attributable to a worse-than-expected impact from the COVID-19 containment measures on tourism, merchandise exports and the labour market.

- Though not stated in the statement, we discern that the 2021 growth upgrade was largely due to a low base effect.

● Sharper deflation is expected (-1.7%; previous forecast: -1.0%; 2019: 0.7%)

- Due mainly to lower energy prices as global oil demand was crimpled by massive movement restrictions.

● THB’s appreciation was again highlighted as a concern

- THB appreciated against the greenback to its strongest level since end-January. This was viewed by the BoT as a potential hindrance to economic recovery, specifically tourism and export activities.

- If currency gains prolong, the BoT may announce measures, such as further easing of its capital outflow rules, to curb the appreciation of THB.

● A sanguine tone derived from the statement suggests an end to the monetary easing cycle

- The BoT seemed to be inclined to end the current easing cycle by emphasising on signs of improvement ineconomic activities following the gradual relaxation of the containment measures since 3rd May, as well as by suggesting the need to shift towards supply-side policies to address the structural changes post-COVID-19.

- As such, with the economy expected to gain support from the domestic tourism stimulus package (USD0.7b), full economic reopening on 1st July and partial relaxation of entry of foreigners, we foresee the policy rate to be retained at 0.50% at the next meeting in August.

Source: Kenanga Research - 25 Jun 2020