MNI Bank of Thailand Preview - August 2021
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MNI Bank of Thailand Preview – August 2021
Announcement Date: Wednesday, 4 August 2021
Announcement Time: 08:05 BST/14:05 ICT
Link To Rate Decision: https://tinyurl.com/BoTAug2021
MNI Point of View: BoT To Stay Put, Keep Working On Targeted Measures
While fresh signs that the Bank of Thailand has space to loosen monetary policy have materialised in recent
weeks, we expect policymakers to leave benchmark policy rate unchanged, in light of limited policy space and the
Bank’s stated preference for targeted support measures.
The upsurge in Covid-19 cases refuses to abate, with
persistent shortages in vaccine supply exacerbating
pressure on the public health system. The national Covid-19
task force responded by extending existing lockdown
measures until the month-end and adding 16 more provinces
to the 13 already on the lockdown list. The enhanced
lockdown now covers regions, which collectively contribute
¾ of Thailand’s GDP. To top it all off, difficult Covid-19
situation delivered a blow to Thailand’s ambitious plans to
restart its tourism industry, the pre-pandemic backbone of
national economy. Phuket banned domestic travellers from
entry, while Pattaya’s reopening will likely be postponed.
Thailand’s troubles with the current wave of Covid-19 infections are weighing on the already lowered growth
prospects. The BoT downgraded their 2021 GDP growth projection at the June meeting, to +1.8% Y/Y from +3.0%
pencilled in at the March meeting, but even this revised forecast may already be outdated. The Bank subsequently
warned that the current outbreak of Covid-19 could shave between 0.8pp and 2pp off economic growth this year
and noted that “the outbreak seems to be longer and more severe than we had already anticipated”. Separately,
late July saw the 2021 growth forecast based on the BoT’s survey of 42 analysts downgraded to +1.3% Y/Y from
+2.5%, with the Ministry of Finance also lowering their projection to +1.3% Y/Y from +2.3%.
The government also slashed their estimate of this year’s tourist arrivals to 0.3mn from 2.0mn forecast in April,
which is much less than predicted by the local tourism authority and, importantly, less than half of the 0.7mn
projected in the BoT’s June Monetary Policy Report. With the tourism industry in dire straits and the broader
economy battered by the raging Delta coronavirus variant, speculation has been doing rounds that Thailand could
even plunge into recession come the end of the year, which adds pressure on the central bank to ramp up efforts to
stimulate recovery.
This occurs at a time when the inflation environment
is rather benign and headline CPI has returned into
the target range of +1.0%-3.0% Y/Y after a brief spike
in April. Core CPI remains subdued, while the BoT
said last month that they expect headline inflation to
remain within the target band over the next 12
months. This opens up space for the BoT to trim
interest rates if needed.
A typical barrier to loosening policy in many emerging
economies is provided by the Fed’s taper talk. Fear of
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Business Address – MNI Market News, 5th Floor, 69 Leadenhall Street, London, EC3M 2DBcapital outflows which could be unleashed by widening interest rate spread with the U.S. has helped persuade
many EM central bankers to refrain from adding monetary stimulus, despite worsening Covid-19 outbreaks and
ensuing hit to local economies. A recent study by a BoT economist published on the central bank’s website noted
that interest rate spreads have little impact on foreign fund flows into Thailand and therefore the BoT do not need to
track the Fed’s policy tweaks. That being said, we can only speculate about whether this single piece of research
will have much impact on the MPC’s thinking, when they consider all the relevant factors.
Crucially, the Bank judged in June that “financial measures should be expedited,” as “these would provide more
targeted assistance to the affected businesses and households than cutting the policy rate”. According to the MPC,
“the policy rate was already at a low level and cutting it might not lend much support to the economic recovery.”
With benchmark policy rate sitting at its record low, Thai policymakers seem to prefer using targeted measures
such as debt restructuring and special loan facility and watch them work in tandem with the government’s recently
expanded fiscal stimulus.
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Business Address – MNI Market News, 5th Floor, 69 Leadenhall Street, London, EC3M 2DBBank of Thailand June Monetary Policy Decision:
The Committee assessed that the Thai economic recovery would be slower and more uneven than the previous
forecast due to the third wave of the COVID-19 outbreak. Downside risks to the economic outlook also remained
significant from the new wave of the outbreak. The Committee viewed that financial measures, particularly special
loan facility for businesses as well as debt restructuring, should be expedited. These measures would reduce
financial burden for the businesses and households affected by the outbreak in a more targeted manner than
cutting the policy rate, which was already at a low level. The Committee thus voted to maintain the policy rate at
this meeting and stand ready to use the limited policy space at the most effective timing.
The Thai economy was projected to expand by 1.8 and 3.9 percent in 2021 and 2022 respectively. This would be
lower than the previous projection owing to lower foreign tourist figures and domestic demand held down by the
third wave of the outbreak. The labor market would be more fragile and recover slowly, particularly the service
sectors and the self-employed. However, the economy would be supported by higher public expenditure thanks to
the Emergency Decree Authorizing the Ministry of Finance to Raise Additional Loans to Solve Economic and Social
Problems as Affected by the Coronavirus Disease Pandemic, B.E. 2564 (2021) as well as by the improving
merchandise exports in line with the global economic recovery. Headline inflation would temporarily increase in the
second quarter of 2021 due to the low level of crude oil prices in the same quarter of last year. Meanwhile, higher
inflation in advanced economies and global supply shortages would have limited impact on domestic inflation.
Medium-term inflation expectations remained anchored within the target. Downside risks to the economic outlook
also remained significant from the possibility of the outbreak situation in Thailand and abroad becoming more
severe owing to virus mutations. The Committee would closely monitor these risks which would affect foreign
tourist figures as well as domestic economic activities.
Despite ample overall liquidity, the distribution of liquidity remained uneven due to increased credit risks,
particularly among SMEs and households that were additionally impacted by the third wave of the COVID-19
outbreak. Long-term government bond yields remained stable. On exchange rates, the Thai baht relative to the US
dollar depreciated more than regional currencies. The Committee would closely monitor developments in both the
global and domestic financial markets and continue to expedite the new foreign exchange ecosystem.
The Committee viewed that the continuity of government measures and policy coordination among government
agencies would be critical to support the economic recovery impacted by the new outbreak. Short-term measures
to accelerate the procurement and distribution of vaccines would prevent the outbreak from being prolonged. Fiscal
measures would play a crucial role in driving the economic recovery amid high uncertainties. Thus, the government
should accelerate the disbursement of relief and other fiscal support measures to provide adequate and continuous
economic stimulus as well as address vulnerabilities in the labor market. Meanwhile, monetary policy must remain
accommodative. The new financial rehabilitation measures to support business recovery post-COVID-19 and other
measures by specialized financial institutions (SFIs) should accelerate the distribution of liquidity to the affected
groups in a targeted manner, reduce debt burden, and support the economic recovery. In addition, financial
institutions should accelerate debt restructuring. The Bank of Thailand would closely monitor the progress and
assess the efficacy of financial and credit measures.
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 the distribution and efficacy of COVID-19 vaccines, the possibility of the outbreak situation in
Thailand and abroad becoming more severe owing to virus mutations, 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 press release.
Click here to see the edited minutes of the meeting.
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Business Address – MNI Market News, 5th Floor, 69 Leadenhall Street, London, EC3M 2DBBank of Thailand Q2 Monetary Policy Report:
• At the meetings on May 5 and June 23, 2021, the Committee voted unanimously to maintain the policy rate
at 0.50 percent. The Committee assessed that Thailand’s economic recovery would be slower and more
uneven compared with the previous assessment. The Thai economy was projected to expand by 1.8 in
2021 and 3.9 percent in 2022.
• Key assumptions underpinning the latest economic forecasts were as follows. First, the third wave of
COVID-19 in Thailand would be well contained by the beginning the fourth quarter of 2021. Second, at
least 100 million vaccine doses would be procured and distributed within 2021 as planned, leading to the
attainment of herd immunity by the first half of 2022. Third, additional fiscal stimulus would be forthcoming
under the new Emergency Decree that authorized 500 billion baht of government borrowing. However, the
Thai economic outlook would still face significant uncertainties and downside risks.
• The Committee viewed that the most important issue facing the Thai economy at the present was the
procurement and distribution of appropriate vaccines in an adequate and timely manner. Financial
measures should be expedited, particularly the special loan facility and debt restructuring. These would
provide more targeted assistance to the affected businesses and households -2- than cutting the policy
rate. The policy rate was already at a low level and cutting it might not lend much support to the economic
recovery.
Click here to see the full Monetary Policy Report.
Click here to see slides from the latest Analyst Meeting.
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Business Address – MNI Market News, 5th Floor, 69 Leadenhall Street, London, EC3M 2DBSell-side comments:
ANZ: We expect the Bank of Thailand (BoT) to keep its policy rate on hold at 0.50% despite an escalating virus
outbreak. The government has responded by tightening containment measures further, which has in turn weakened
economic activity and mobility significantly. The BoT had cut its GDP growth forecasts to 1.8% (from 3.0%) and
3.9% (4.7%) for 2021 and 2022, respectively, at its last meeting in June. However, the BoT recently estimated that
the larger-than-expected outbreak may reduce GDP by a further 0.8-2.0% this year. It is due to release new
projections in September. Given the heightened growth risks, supporting the economy will be the BoT’s priority. It
has signalled a preference for targeted non-rate measures to support businesses and households. It recently
allowed a two-month debt holiday for individuals and SMEs affected by the government’s tighter lockdown
measures, and is likely to focus its efforts on improving liquidity in affected groups. While monetary policy will
remain accommodative, a durable recovery hinges more on the government’s vaccine strategy and fiscal support.
The vaccine coverage remains low, with just 18% of the population at least partially vaccinated and 5% fully
vaccinated. Thailand needs to more than double its current vaccination pace if it is to receive the government’s goal
of administering 100m doses by year-end. However, vaccine shortages have been a key constraint. On fiscal
policy, the government has been ramping up its stimulus measures.
Barclays: We expect the BoT to maintain its benchmark interest rate at 0.50%, and reiterate that an interest rate
cut is too blunt a tool for the current crisis. While the BoT usually does not alter its forecasts at the August
meetings, we note that the MPC may lay out some scenarios (as done in May) to indicate by how much it is likely to
reduce its growth forecasts in future meetings.
Goldman Sachs: We expect the Bank of Thailand (BoT) to keep policy rates on hold at 0.5% (Bloomberg
consensus: 0.5%). In July, the government imposed stricter movement restrictions in Bangkok and nearby
provinces to curb the ongoing spread of COVID infections in the country. Given tighter mobility restrictions, earlier
this week, the Ministry of Finance cut its 2021 GDP growth forecast to 1.3% (GS: 1.4%) from 2.3% previously. At a
recent briefing, BOT policymakers noted that if the current outbreak dragged on through year-end, without
additional fiscal measures or a boost from the external sector, GDP could potentially contract another 0.8% to 2%
in 2021. This suggests another significant growth forecast downgrade may be on the cards for the BOT at the
upcoming meeting. Headline inflation also eased back towards the bottom end of the inflation target band of 1%-
3% by June, after briefly spiking above the upper end of the target band in April due to unfavorable base effects.
Going forward, as growth remains subdued in the second half of the year, and with “catch up” growth on
rebounding tourism only likely in 2022, we expect Bank of Thailand to be one of the slowest central banks to hike
policy rates, only beginning to tighten policy in early 2023. In our view, BOT will likely continue to focus its easing
efforts on soft loan programs and targeted credit support schemes over rate cuts, QE or YCC, given the diminishing
effectiveness of further rate cuts at the effective lower bound, and as bank lending dominates capital markets in
credit intermediation channels weakening the argument for using unconventional policy tools.
ING: The Bank of Thailand meets this week (4 August). We are part of a unanimous consensus that the central
bank will leave the policy rate unchanged at 0.50% this week.
Kasikorn: Kasikorn Research Center estimates that the Monetary Policy Committee (MPC) will consider keeping
the policy rate at 0.50% to support economic recovery amid rising risks from the spread of Covid-19. The spread of
the delta variant makes the epidemic more difficult to control. We expect that the MPC will maintain the policy rate
at 0.5% to save ammunition amid the limited policy space. The Bank of Thailand (BOT) should continue to focus on
implementing targeted measures to help reduce the debt burden of businesses and households.
Morgan Stanley: We expect BoT to keep the policy rate on hold at 0.5% at the upcoming MPC meeting next week.
Notwithstanding the domestic Covid-19 resurgence and the attendant tightening of restrictions, we do not anticipate
further rate cuts from BoT for a few reasons. Firstly, the policy rate is already at a record low and is sitting close to
its effective lower bound. Notably, BoT had signaled the need to preserve policy space in its last monetary policy
statement in June when it held policy rate and cut its Thai GDP forecasts. In our view, BoT would likely focus on
other financial measures (e.g. expediting SME soft loan scheme and debt restructuring programmes) to alleviate
the debt burden for businesses and households. Overall, we expect BoT to keep the policy rate low for longer, with
a first liftoff in rates only in late 4Q22as the growth recovery further firms out. Furthermore, between monetary and
fiscal policy, we think the latter is likely the more effective policy lever to cushion growth at this stage, and
Thailand’s relatively low public debt means that there is still room for the public sector to lever up. Indeed, we note
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Business Address – MNI Market News, 5th Floor, 69 Leadenhall Street, London, EC3M 2DBthat the Thai cabinet has approved another Bt140bn (~0.9% of GDP) stimulus package in June, comprising cash
hand-outs, cash rebates and co-payment measures, to mitigate the impact of Covid restrictions on households.
NatWest: We think Wednesday’s Bank of Thailand meeting will continue to see rates unchanged at 0.5%, in line
with consensus. The BoT remains less concerned about headline inflation and the potential pass-through from its
trading partners or commodities. Downside risks to tourism and growth remain the primary focus, particularly as
progress on containing COVID has lagged. Targeted monetary support is more likely than a continued easing of
policy rates.
Scotiabank: Wednesday’s decision is not expected to yield any change in policy stance as COVID-19 continues to
challenge its important tourism industry.
UOB: We continue to observe that policy space remains very limited, while fiscal policies will likely do the heavy
lifting in supporting economic growth. In all, we keep our call for BOT to leave its benchmark rate unchanged at
0.50% for the whole of 2021. Still, Thailand’s economic growth is likely to be uneven, amid pronounced downside
risks should COVID-19 worsen. If macroeconomic fundamentals stay unexpectedly subdued into 2H21, a 25 bps
rate cut could materialise then.
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Business Address – MNI Market News, 5th Floor, 69 Leadenhall Street, London, EC3M 2DBMNI Policy Team Insights:
MNI STATE OF PLAY: Thai CENBANK To Hold Rates As Options Narrow
By Lachlan Colquhoun
Thailand's central bank meets this week with no change expected to record low interest rates but with ongoing
questions over the currency and economic growth due to the pandemic and a slow vaccination rollout.
The Bank of Thailand's benchmark interest rate is expected to stay at 0.5% at Wednesday's meeting, with tourists
still staying away due to the pandemic, the economy is destined for a period of low growth. The BoT last cut rates
in mid-2020.
The central bank holds its latest review on Wednesday, Aug. 4.
-- TARGETED MEASURES
With rates at a record low the BoT has limited options in terms of conventional monetary policy, and has turned to
other more targeted measures such as the recent USD11.2 billion program of soft loans and a debt scheme to prop
up businesses until tourists return as highlighted by MNI on July 2.
It has also looked to fiscal policy to do the heavy lifting.
Last week the BoT released data showing that private consumption remained weak, although exports had
supported the economy as had public spending.
-- GROWTH AND INFLATION
Growth has fallen over the last five consecutive quarters and declined by 2.6% in the second quarter of this year.
The BOT's current GDP growth forecast is for 1.8% this year and rising to 3.9% in 2022.
On a positive note, inflation has receded as an issue of concern with the headline figure declining in June
Of more concern is the Thai baht, which has fallen sharply since mid June, and is now close to THB33 to the USD.
The baht began the year at around 30 to the USD.
While positive for exports, the central bank is always concerned about currency volatility and is mindful that the
baht is one of the worst performed currencies in Asia over 2021.
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