Thailand: BoT hiking cycle over? – UOB

owed to keep interest rates at a record low of 0.5% as the country grapples with the economic impact of the Covid-19 pandemic. The decision was in line with market expectations, as the central bank has been cautious in its approach to monetary policy, given the uncertain economic conditions.

The Bot’s monetary policy committee (MPC) recognized that the Thai economy is facing significant challenges due to the ongoing Covid-19 outbreak. The central bank stated that economic recovery would be gradual and dependent on the ability of vaccine deployment and containment measures. This is in line with the Bank’s previous communications that the key upside risks to growth come from the speedy distribution of vaccines globally.

Importantly, the Bot emphasized the need for continued policy support for the ongoing economic recovery. The Bank highlighted that it would maintain its accommodative monetary policy stance for as long as necessary to support the economy.

The central bank expects inflation to remain low in the near-term, mainly due to the lower energy prices and weak domestic demand. The Bot sees inflation returning close to its target range of 1-3% in the second half of 2022. The Bank also expects the current account surplus to narrow but remain positive in 2021 due to the rebound in exports and moderate import growth.

In response to the pandemic, the Bank of Thailand earlier implemented several measures to provide monetary support to the economy. The significant measures include:

• Lowering the policy rates by 75 basis points in the first half of 2020
• Implementing a series of financial market measures to ensure smooth market transactions
• Providing debt relief measures for borrowers and businesses affected by the pandemic

The policy rate-cut decision has had a limited impact on the economy, as banks remained cautious in lending amid weakening demand, especially in the real estate and consumer financing sectors. The ongoing pandemic has also led to a decline in tourism and travel-related activities, contributing to lower consumer and business demand.

Looking ahead, the key risks to the Thai economy predominantly stem from the ongoing challenges presented by the pandemic, including its impact on global trade, supply chain disruptions, and the effectiveness of vaccine deployment worldwide. The Bank of Thailand will continue to monitor these risks and adjust policy measures according to the evolving economic conditions.

In conclusion, the Bank of Thailand continues its accommodative monetary policy stance amidst the ongoing pandemic’s economic uncertainties. The Bank recognizes that the recovery would be gradual and dependent on vaccine deployment and containment measures. The Bot remains committed to providing policy support for the ongoing economic recovery through a series of targeted measures, such as debt relief and financial market intervention.

Overall, the central bank’s stance reflects its cautious approach to support the economic recovery and maintain macroeconomic stability in a challenging environment. While there are several risks and uncertainties, including the spread of new variants of the virus, the Bank of Thailand’s proactive measures and supportive policy stance provide optimism for the economy’s future trajectory.


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