• Policy rate maintained at a record low of 0.50%, at Bank of Thailand’s (BoT) first Monetary Policy Committee (MPC) meeting this year, in line with house and market expectations
  • A unanimous vote from its seven committee members.
  • This decision came in as the nation’s new daily COVID-19 cases showed some signs of moderation, after marking a record high of 1,732 cases on 29 January.
• BoT was relatively optimistic on the prospect of recovery, despite acknowledging that the new COVID-19 outbreak has weighed on the short-term outlook
  • The optimism was underpinned by the “timely and targeted” fiscal actions, with the government recently announcing a stimulus package worth THB210b as well as higher external demand amid the technology upcycle.
  • Nevertheless, uncertainty remained elevated, arising from the domestic COVID-19 developments, tepid recovery in the tourism sector, efficacy of COVID-19 vaccination, sufficiency of fiscal support and the labour market situation.
• Emphasised on the need to improve the “effectiveness of liquidity distribution”
  • While the level of liquidity remained sufficient, the distribution was assessed to be uneven, not properly reaching the vulnerable SMEs and low-income households. Hence, it stressed the importance to ensure timeliness and targeting of liquidity assistance.
• We continue to pencil in an unchanged policy rate in the near term
  • Growth momentum will likely remain modest in the 1Q21, whilst waiting for the COVID-19 outbreak to be fully contained and consumer and business confidence to return. Subsequently, we expect the economy to gradually recover following the first phase of vaccine rollout on 14th February, along with the extended fiscal support and the ongoing relaxation of COVID-19 restrictions in several provinces.
  • Against the prospect of continued economic recovery and coupled with the BoT’s aim “to preserve the limited policy space to act at the appropriate and most effective timing”, we opine that the policy rate will be kept at 0.50% in the immediate term.

Source: Kenanga Research - 4 Feb 2021