● The Bank of Thailand (BoT)maintainedthe policy rate at a record low of 0.50%, in line with house and market expectations

• The Monetary Policy Committee (MPC) voted 4– 2 (one member was absent) to retain the policy rate, in the first split decision since May 2020. The two dissenters voted to cut the rate down to 0.25%, indicating a dovish tilt.

● BoT revised down its GDP forecast for 2021 to 0.7% (previous: 1.8%; 2020: -6.1%) and 2022 to 3.7% (previous: 3.9%)

• It assessed that the prolonged and severe COVID- 19 outbreak has had a greater-than-expected impact on private consumption, the labour market, and may significantly affect foreign tourist numbers even into 2022.
• However, the economy should continue to find some support in higher public expenditure and improving merchandise exports, although the manufacturing sector has recently been impacted by raw material shortages and infection outbreaks in factories.

● Sustained focus on expediting fiscal measures, to assist affected groups in a targeted and timely manner

• The majority of MPC members held the view that fiscal measures would be more effective than a further reduction in an already record low policy rate. However, it was noted that despite abundant overall liquidity, its distribution was uneven especially among SMEs and households impacted by the current outbreak. The BoT stressed that the distribution of liquidity needed to be accelerated and debt burden must be reduced to support those affected.

● Emphasised the importance of containing the current COVID-19 outbreak and further distributing vaccines

• Thailand has witnessed a surge in COVID-19 cases since June, witha record high20.0k daily infections registered as recently as yesterday (Aug 04). As such, the country reinstated lockdown measures from Jun 28, which has since been tightened and will likely be further extended until Aug 31. This may also delay plans to fully reopen Thailand to foreign tourists by Oct 14.

● Impact of COVID-19 outbreak, and extended lockdown measures, slightly raises the probability of a rate cut

• We assign a 25% probability of a 25bps rate cut at the next meeting in September, given the potential extension of restriction measures amid a surge in COVID-19 infections. The BoT stated that downside risks to economic outlook remain high from the possibility of the COVID-19 outbreak becoming more severe. Despite an apparent preference to let fiscal policy take the lead in supporting recovery, the BoT has stated that additional monetary policy tools would be used if necessary.

Source: Kenanga Research - 5 Aug 2021