● Policy rate retained at a record low of 0.50%, at the final Monetary Policy Committee (MPC) meeting this year, matching house and market expectations

- A unanimous vote from six MPC members (one member was absent).

● The BoT revised its GDP forecast higher for 2020 (-6.6%; previous: -7.8%; KIBB: -6.2; 2019: 2.4%) and lower for 2021 (3.2%; previous: 3.6%; KIBB: 4.1%)

- 2020 GDP upgrade was underscored by improvement in goods exports and private consumption, supported by fiscal measures.

● Continued emphasis on a “highly uncertain” path of recovery

- Contingent upon developments surrounding the recent COVID-19 outbreak in Samut Sakhon (~3.0% of GDP), the ensuing containment measures and the rollout of COVID-19 vaccine, which is vital for the recovery in tourists arrivals.

- Vaccination rate in countries that are key to Thailand’s tourism sector is expected to be more than 30% of the population by 3Q21, while domestically, 20% vaccination rate will be achieved by 4Q21.

● The BoT maintained 2021 inflation projection at 1.0%, hitting the lower bound of the target range of 1.0-3.0% (2020F: -1.0%).

● Focused on expediting the implementation of the announced FX measures (i.e. liberalisation of capital outflows, enhanced scrutiny of foreign investment in the Thai bonds)

- This is to temper the appreciation of the THB, driven by the ongoing risk-on sentiment and prolonged dollar weakness.

● An unchanged policy rate is expected in the near term

- Despite its sustained dovishness and readiness to “use additional appropriate monetary policy tools”, we expect the BoT to stand pat on policy rate in February, consistent with its aim of “preserving the limited policy space” and assuming that the government is able to contain the new COVID-19 outbreak in the next few weeks, resulting in limited reimplementation of lockdown measures.

Source: Kenanga Research - 24 Dec 2020