MNI Bank of Thailand - November 2021 - RBL.MS
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MNI Bank of Thailand – November 2021
Announcement Date: Wednesday, 8 November 2021
Announcement Time: 07:05 BST/14:05 ICT
Link To Rate Decision: https://tinyurl.com/BoTNov2021
MNI Point of View: Steady As She Goes
The Bank of Thailand are set to stand pat to avoid frustrating the economic recovery in its early phase, even as
macroeconomic indicators are already pointing to improving economic performance, while inflation environment is
relatively benign. We expect a unanimous decision to leave the benchmark policy rate unchanged at 0.50%.
As daily Covid-19 cases abate and Thailand keeps withdrawing restrictions on activity, economic recovery is
gaining momentum. The manufacturing sector has returned to expansion, according to the latest Markit PMI
survey, while official sentiment gauges have been improving among consumers and businesses alike. That being
said, the recovery is not yet in the full swing, while the critically important tourism sector will take some time to
return to pre-pandemic levels. Some restrictions on international travel still remain in place, including in China.
The inflation environment remains relatively
benign, providing space for leaving interest rates
lower for longer. Thailand’s consumer price
growth accelerated to +2.38% Y/Y in October,
which was driven by firmer domestic prices of fuel
and flood-related increase in vegetable costs.
However, core inflation remained very subdued
(+0.21% Y/Y), while the Commerce Ministry
played down potential for any sustained pick-up in
inflation amid the government’s efforts to stabilise
domestic diesel and oil prices, as well as the
anticipated dissipation of the impact of recent
floods on food prices.
It is worth noting that the central bank have
The shaded region represents the Bank of Thailand’s target range.
recently used available tools to stimulate lending
activity. They raised the loan-to-value ratio cap for mortgage lending to 100% from 70-80%, effective immediately
through the end of 2022, in a bid to support the struggling property sector. While housing loans represent just
around a third of Thailand’s overall household debt, the loosening of macroprudential regulations has the potential
of lifting the ration of total household debt to GDP from its current, worryingly elevated level. Similar targeted
macroprudential measures will likely remain the BoT’s tool of choice for now, as cutting rates further from record
low levels could provide a greater risk to financial stability.
Furthermore, the MPC has grown more reluctant towards dovish interest rate action. After a split decision in
August, which saw two policymakers vote in favour of a 25bp rate cut, the Committee presented a united front in
September, when they unanimously decided to leave policy settings on hold. With the couple of dovish-leaning
MPC members now seemingly on board with leaving interest rates unchanged, the most probable outcome of the
upcoming meeting is another unanimous stand-pat decision.
Meanwhile, fiscal policy will be a more adequate tool for stimulating economic recovery going forward and has the
potential to address supply-side price pressures through targeted subsidies. For their part, the Bank of Thailand will
leave monetary policy settings accommodative until there are material signs of a sustained rebound in the domestic
economy.
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Business Address – MNI Market News, 5th Floor, 69 Leadenhall Street, London, EC3M 2DB2|Page Business Address – MNI Market News, 5th Floor, 69 Leadenhall Street, London, EC3M 2DB
Bank of Thailand September Monetary Policy Decision:
The Committee voted unanimously to maintain the policy rate at 0.50 percent.
The Committee assessed that the Thai economy in 2021 and 2022 would expand close to the projection from the
previous meeting, but uncertainties surrounding the economic outlook remained high. Nonetheless, progress on
vaccination and earlier-than-expected relaxation of the containment measures would help support the economy in
the period ahead. The most important issue for the Thai economy at present was the implementation of public
health measures that would help facilitate the economic and income recovery. The Committee viewed that
government measures should be expedited to support the economic recovery. Despite some progress on financial
measures, liquidity distribution and debt restructuring should be expedited further for those who were affected. The
Committee viewed that financial measures would be more effective than a further reduction in the policy rate, which
was already low, and thus voted to maintain the policy rate.
The Thai economy was projected to expand 0.7 and 3.9 percent in 2021 and 2022 respectively, largely unchanged
from the August projection. Although the economy in the third quarter of 2021 was affected by the containment
measures and a slowdown in exports, significant progress on vaccination and earlier-than-expected relaxation of
the containment measures would help restore private sector confidence and boost private consumption for the rest
of 2021. The economy in 2022 would gradually recover mainly owing to domestic spending in tandem with
improving confidence. Foreign tourist figures were expected to recover slowly, while merchandise exports would
continue to be affected by shortages of containers and semiconductors. The labor market improved from higher
income of workers in the services sector and the self-employed in line with economic acitivities. Headline inflation
would remain subdued in line with weak domestic demand. Nonetheless, headline inflation forecast and medium-
term inflation expectations remained anchored within the target. The Thai economy would still be highly uncertain.
Thus, there remained a need to monitor the development in the outbreak and relaxation of containment measures,
private sector confidence, as well as the momentum of government measures as these factors would affect the
economic recovery going forward.
Despite ample overall liquidity, the distribution of liquidity remained uneven due to increased credit risks,
particularly among SMEs and households. Nonetheless, the special loan facility for businesses helped enhance
credit access for SMEs. On exchange rates, the baht relative to the US dollar exhibited more volatile movements
owing to developments of monetary policy in advanced economies and uncertainties in the Thai economic recovery
outlook. The Committee would closely monitor developments in both global and domestic financial markets and
continue to expedite the new foreign exchange ecosystem.
The Committee viewed that the government measures and policy coordination among government agencies would
be critical to support the economic recovery. Public health measures should strike a balance between containing
the outbreak and supporting the recovery of economic activities and income. Fiscal measures should help facilitate
the economic recovery by emphasizing on generating income and preparing measures to raise potential growth.
Monetary policy must contribute to continued accommodative financial conditions overall. Financial and credit
measures should be expedited to distribute liquidity to the affected groups in a targeted manner and help reduce
debt burden. These measures included the special loan facility, asset warehousing scheme, and other measures
by specialized financial institutions (SFIs). In addition, financial institutions should accelerate debt restructuring to
have broader impacts and be consistent with borrowers’ long-term debt serviceability.
Under the monetary policy framework with objectives of maintaining price stability, supporting sustainable and full-
potential economic growth, and preserving financial stability, the Committee continued to put emphasis on
supporting the economic recovery. In addition, the Committee would monitor key factors affecting the economic
outlook, namely implementation and relaxation of the domestic containment measures as well as the adequacy of
fiscal, financial, and credit measures. The Committee would stand ready to use additional appropriate monetary
policy tools if necessary.
Click here to see the full release.
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Business Address – MNI Market News, 5th Floor, 69 Leadenhall Street, London, EC3M 2DBSell-side comments:
ANZ: The BoT’s decision to keep the policy rate unchanged at its last meeting in September was unanimous and
was accompanied by a more upbeat tone, and we expect a similar outcome at its upcoming meeting. Thailand’s
economy has shown further signs of recovery. The average number of daily virus infections has-been on a firm
downtrend, paving the way for the government to continue to ease restrictions. Both private consumption and
investment have started to rebound, and a further reopening of the economy amid higher vaccination rates,
improving confidence and government stimulus measures aimed at bolstering spending suggests that the recovery
has further upside. Notably, mobility in retail and recreation areas has now largely normalised. The kingdom’s
broader reopening to foreign tourists from November is also a positive driver for the growth outlook. However, with
the recovery still nascent and uneven across sectors, growth considerations will remain the BoT’s priority for quite
some time yet. Notably, the central bank has recently loosened home mortgage lending limits to boost the property
sector and related businesses (~10% of GDP), underscoring its bias towards maintaining an accommodative
stance. Although inflation rebounded in September to 1.68% y/y and returned to the central bank’s 1-3% target
range, the rise was driven by higher oil prices and the expiry of utility subsidies. The rise in core inflation was much
milder, and at a mere0.19% y/y, underlying price pressures remain very weak, reflecting the significant amount of
slack in the economy. With demand-side price pressures benign and output unlikely to return to its pre-pandemic
size until late 2022, we believe Thailand won’t begin policy normalisation any time soon.
Barclays: We expect the BoT to keep the policy rate unchanged in a unanimous vote, given that the worst is likely
over for the economy. After a split MPC decision in August, when two members voted for a 25bp cut, the MPC
moved to a unanimous hold in the previous meeting, suggesting that even the dovish members have turned their
back on rate cuts for now.
DBS: We expect the Bank of Thailand (BOT) to keep its policy rate unchanged at 0.5%. While the Monetary Policy
Committee believes monetary policy should be accommodative to complement fiscal policy, it sees little effect from
a further reduction in the policy rate, which is already at a very low level. At the same time, the BOT is unlikely to
hike given the still uneven and fragile economic recovery, with core inflation still at very benign levels of 0.2% YoY
amid existing economic slack. The central bank has so far looked through the volatility in headline inflation –
October’s figure rose at the fastest pace in five months of 2.4% YoY due to a pickup in energy price increases and
slower decline in food prices.
Goldman Sachs: We expect the Bank of Thailand (BoT) to keep policy rates on hold at 0.5% (Bloomberg
consensus: 0.5%). Activity remains subdued now, but is expected to recover progressively in coming quarters amid
a relaxation of domestic COVID measures and an acceleration in tourist arrivals. Headline inflation spiked to 1.7%
yoy in September as government utility subsidies expired. However, core inflation remains subdued and is likely to
rise only gradually towards the bottom-end of BOT’s inflation target band of 1%-3% by Q4 next year (from -0.2%
yoy, currently). Going forward, with subdued core inflation pressures and some “catch up” growth on rebounding
tourism likely only in 2022, we expect Bank of Thailand to be one of the slowest central banks to hike policy rates in
the region, only beginning to tighten policy in early 2023.
J.P. Morgan: The rise in headline CPI (0.8%m/m, sa) was driven by food (0.35%ppt.) and energy (0.33%ppt.).
Following the tariff hike in September, electricity prices have stabilized. However, core price pressures remain
muted. We upgrade our headline CPI forecast for 2021 (0.6%oya to 1.2% oya) and 2022 (1.3%oya to 2.1%oya) to
take into account high energy prices. Despite the headline CPI increase, we still expect the BOT to stand pat
through 1H22 on soft core inflationary pressures.
Morgan Stanley: We expect the BoT to stay on hold at 0.5% at the upcoming MPC meeting and through the
course of 2022, mainly for two reasons. First, the policy rate is already at a record-low level and likely close to its
effective lower bound. Recent policy-makers’ comments also suggest that they view other financial measures (e.g.,
expediting the SME soft loan scheme and debt-restructuring programmes) as more effective at this stage. Indeed,
the BoT recently eased the loan-to-value ratio in the property sector to support the economy. Second, between
monetary and fiscal policy, we think that the latter is likely the more effective policy lever to cushion growth at this
stage. Thailand’s relatively low public debt also means that there is still room for the public sector to lever up, and
we note that policymakers have recently lifted the public debt/GDP ratio ceiling from 60% to 70%. On the FX side,
THB had rebounded despite the higher oil price and been trading in a range. Thailand reopened the border starting
in November 1. However, a lack of prospects that tourists will come back to the pre-COVID-19 level could continue
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Business Address – MNI Market News, 5th Floor, 69 Leadenhall Street, London, EC3M 2DBto drag on THB's performance. The BoT is likely also ready to curb any speculative appreciation. THB will likely
keep trading in range with DXY pausing its appreciation path.
Scotiabank: Another hold at 0.5% is expected on Wednesday. The Thai baht’s 10% depreciation to the dollar
since mid-February is so far doing little to generate core inflation pressures (0.2% y/y) as the tourism industry
continues to struggle, but financial stability considerations are more dominant.
UOB: Coupled with the relatively positive economic outlook, benign inflation rates, and COVID19 related risks, we
think that BOT is likely to keep its accommodative monetary policy stance unchanged for the rest of the year;
although an unexpected worsening of macroeconomic fundamentals could prompt a 25bps rate cut in Dec 2021.
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Business Address – MNI Market News, 5th Floor, 69 Leadenhall Street, London, EC3M 2DBMNI STATE OF PLAY: Thailand CB Banks On Recovery In Rate Views
By Lachlan Colquhoun
SYDNEY (MNI) - Thailand's central bank is looking to an economic recovery as international tourists return and
businesses re-open, putting on hold the immediate need for more accommodative monetary policy.
At its meeting on Wednesday, the Bank of Thailand is expected to leave the one day repurchase rate unchanged at
0.50%, a decision which is likely to have the unanimous support of the Monetary Policy Committee.
Two members of the committee advocated a 25-basis point rate cut at the August meeting to help the economy
through the pandemic, but September's decision - in advance of the re-opening - was unanimous as the bank
upgraded its 2021 growth forecast to 3.9%.
--AN EYE ON THE FED
With the economy re-opening and the baht stabilizing at around 32 to the USD, a rate favourable for exporters, the
Bank of Thailand is likely to maintain some policy ammunition for 2022 if the economy and the currency come
under pressure if there is a repeat of the 2013 "taper tantrum" which roiled developing markets as the U.S. Fed
tightened.
Despite its recent stability the baht is still vulnerable and has been one of the region's weakest currencies so far
this year, falling by around 9%.
--POLICY TOOLS
Rather than using the policy tool of interest rates recently, the BoT has focused on other measures, such as last
month's move to ease loan-to-value ratios for mortgage lending to allow homebuyers to borrow up to 100% of the
purchase price.
Also, in October, the bank extended a corporate bond stabilisation fund for another year to the end of 2022 to
support businesses impacted by the pandemic.
The Thai government has also been active in fiscal policy, approving the distribution of another USD1.63 billion to
low-income earners, the elderly and people with disabilities. This came from a USD16 billion loan the government
took out earlier this year.
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Business Address – MNI Market News, 5th Floor, 69 Leadenhall Street, London, EC3M 2DBYou can also read
