● Policy rate maintained at a record low of 0.50% for the second successive meeting,in line with house and market expectations

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

− The Bank of Thailand (BoT) reiterated that its “extra accommodative” monetary policy has helped to alleviate the impacts from the pandemic and would support the forthcoming economic recovery.

● A less-dovish tilt, displaying recovery optimism

− Reference to growth contraction due to the COVID-19 was largely removed and replaced with the expectation of a gradual economic recovery, underpinned by the relaxation of containment measures and improvement in global activities.

− It cautioned that the recovery would proceed over a minimum period of 2 years and with varying pace across sectors. Specifically, external demand has showed signs of improvement, while domestic demand remained pressured as employment and household income were badly hit.

● Expectation for inflation to return to target in 2021 was kept unchanged

− Supported by rising oil prices and the prospect of an economic recovery.

● THB’s appreciation remained a concern

− While THB was rather volatile recently due to domestic political developments, the persistent dollar sell-off could drive the local note higher. This was viewed by the BoT as a potential hindrance to economic recovery, hence necessitating a close monitoring by the committee.

● An unchanged policy rate is expected for the remainder of 2020, barring a 2nd wave of COVID-19 infections

− Underscored by the relatively optimistic tone signalled by the BoT, emerging signs of an improved domestic activities and further disbursement of the fiscal stimulus in 3Q20.

− Nevertheless, the BoT maintained its commitment “to use additional appropriate monetary policy tools if necessary”, justified by the risk of a derailed economic recovery should there be a second wave of the COVID-19 infections.

Source: Kenanga Research - 6 Aug 2020