Thailand's central bank left its policy rate steady for a fifth time and while it lowered its forecast for economic growth next year due to the resurgence of COVID-19 it once again expressed its concern over any "potential rapid" rise of the baht, adding it is willing to take further measures.
The Bank of Thailand (BOT) kept its policy rate at 0.50 percent, unchanged since cutting it for the third time this year in May.
BOT cut its policy rate by a total of 75 basis points in February, March and May, continuing an easing cycle that began in August 2019 in response to slowing global growth from the U.S.-China trade war.
Since August last year the rate has been cut five times by a total of 125 basis points.
As in November, BOT's monetary policy committee was unanimous in its decision - though one member could not attend the meeting - reiterating it was maintaining the rate to "preserve the limited policy space in order to act at the appropriate and most effective timing."
The outbreak of COVID-19 in the spring hit Thailand's important tourism sector hard but private consumption and merchandise exports have recovered faster than expected and BOT lowered its forecast for the economy's contraction this year to 6.6 percent from September's forecast of 7.8 percent.
Thailand's gross domestic product shrank 6.4 percent year-on-year in the third quarter of this year, down from a 12.1 percent fall in the second quarter but up from a 2 percent fall in the first quarter.
In 2019 the Thai economy grew 2.4 percent.
"The Committee assessed that the Thai economy continued to recover but downside risks and uncertainties remained high in the period ahead," BOT said, adding the economy would thus need support from the continued low policy rate.
In 2021 the economy is seen expanding 3.2 percent, less than the 3.6 percent that was previously forecast due to the prolonged outbreak of the pandemic and thus a delay in a recovery of tourism, with the number of visitors now seen at 5.5 million instead of 9.0 million, still sharply below 2019's 39.9 million.
But with COVID-19 vaccinations now beginning to roll out, BOT expects tourism to become the key driver of economic growth in 2022, with the number of tourists rising to 23.0 million and exports growing 12.3 percent, boosting economic growth to 4.8 percent.
The strength of the Thai baht has been a concern for its exporters for years and its rise since early April on optimism over the global economic recovery has triggered political protests.
In its statement last month BOT not only expressed concern over what it said was a "rapid appreciation of the baht as this affected the fragile economic recovery," but also scheduled a briefing on measures to address the issue, leading to a fall in the baht's exchange rate.
But instead of the briefing, BOT announced further measures to allow Thais to freely deposit and transfer funds in foreign currency deposit accounts and invest more in foreign securities, enabling exporters to more effectively manage liquidity and foreign exchange risks, along with intervened in the foreign exchange market to limit excessive volatility.
Today, BOT changed its tone and instead of expressing its concern over the past rise in the baht it pointed to a "potential rapid appreciation of the baht owing to risk-on sentiment in financial markets and the weakening outlook of the US dollar."
The bank's policy committee said it would closely monitor the foreign exchange market and consider "the necessity of implementing additional appropriate measures, as well as continue to expedite new foreign exchange ecosystem."
After hitting a record low of more than 36 to the U.S. dollar in October 2015, the baht rose steadily until April 2018. But after rising for a few months, the baht continued its steady rise until the start of this year when it hit a popped above 30 to the dollar on Jan. 1.
In the next three months it fell to 33 to the dollar but since the start of April it has risen steadily until last week when it once gain breached 30 to the dollar. Since then, however, the baht has eased slightly to trade at 30.2 to the dollar, today, up 9.3 percent since this year's low of 33.0 on April 2.
The baht is thus ending the year some 0.7 percent below its level at the start of the year but up 20.5 percent since its recovery low in October 2015.
The Bank of Thailand released the following statement by its monetary policy committee:
"The Committee voted unanimously to maintain the policy rate at 0.50 percent to support the economic recovery which remained highly uncertain. One MPC member was unable to attend the meeting.
The Committee assessed that the Thai economy continued to recover but downside risks and uncertainties remained high in the period ahead. The economy would thus need support from the continued low policy rate. The Committee voted to maintain the policy rate at this meeting to preserve the limited policy space in order to act at the appropriate and most effective timing.
The Committee projected that the Thai economy would contract 6.6 percent in 2020, which was better than previously assessed due to improvement in private consumption and merchandise exports. The economy would expand at 3.2 percent and 4.8 percent in 2021 and 2022, respectively. Nonetheless, the economic recovery remained highly uncertain which would in the short term depend on the situation of the new wave of COVID-19 outbreak and corresponding containment measures. At a longer horizon, it would depend on the recovery in foreign tourist figures, efficacy and coverage of COVID-19 vaccination, and labor market situation in which numbers of unemployed and underemployed workers remained high. Furthermore, uneven recoveries across economic sectors would affect the sustainability of the economic growth going forward. Financial system remained sound while vulnerabilities among households and SMEs remained. Headline inflation was projected to return to the target in the middle of 2021 and would stay close to the lower bound of the target range throughout the forecast period. Medium-term inflation expectations remained anchored within the target.
Despite ample liquidity in the financial system and low financing costs, some businesses, especially SMEs, and households in need of liquidity have not gained access to credits. The movement of the baht against the US dollar was volatile in line with regional currencies. The Committee expressed concerns over potential rapid appreciation of the baht owing to risk-on sentiment in financial markets and the weakening outlook of the US dollar. The Committee would closely monitor developments in foreign exchange markets, consider the necessity of implementing additional appropriate measures, as well as continue to expedite 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 going forward. Monetary policy must remain accommodative. Financial and credit measures should expedite liquidity distribution to the affected groups in a targeted and timely manner, for instance, through credit guarantee schemes in order to curb credit risks, while financial institutions should accelerate debt restructuring to have a broader impact. Fiscal measures must continue to sustain the economy. In particular, the government should expedite budget disbursement under the restoration plan and simultaneously implement supply-side policies to support business restructuring and upskilling of labor, which would help support sustainable economic recovery in the long term.
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. The Committee would monitor the adequacy of the government measures and various risks, especially the new wave of the domestic outbreak in deliberating monetary policy going forward. The Committee would stand ready to use additional appropriate monetary policy tools if necessary."
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