Thai Central Bank Slashes Interest Rate To Spur Growth

Thai Central Bank Slashes Interest Rate To Spur Growth
February 6, 2020


The greenback rallied against Thai Baht yesterday after the central bank of Thailand trimmed its benchmark interest rate in a surprising move, pointing to weaker-than-anticipated outlook, in part due to the Wuhan coronavirus epidemic. In the past 24 hours, the USD/THB pair has rallied from a low of 30.900 to a high of 31.260.

The central bank of Thailand surprised the market by announcing a 25 basis points rate cut, leaving the benchmark interest rate at 1%. The central bank of Thailand unanimously decided the rate cut decision.  Economists had anticipated the bank to leave the interest rate unaltered for a second consecutive policy meeting. The previous benchmark interest rate of 25 basis points was in November.

The monetary policy committee decided to cut rates based on weaker than earlier forecast economic growth, coronavirus outbreak, drought, and delay in the implementation of the Annual Budget Expenditure Act.

The central bank issued the following statement justifying the rate cut: “In deliberating their policy decision, the Committee assessed that the Thai economy would expand at a much lower rate in 2020 than the previous forecast and much further below its potential due to the coronavirus outbreak, the delayed enactment of the Annual Budget Expenditure Act, and the drought.”

The central bank also forecast that the headline inflation would stay below the lower band of the inflation target in 2020. “Headline inflation was projected to be below the lower bound of the inflation target throughout the forecast horizon,” the bank said.

Members of the policy committee evaluated that financial steadiness may be challenging to maintain due to the possibility of further economic slowdown, and consequently, there was a pressing requirement to reorganize monetary and fiscal initiatives. The bank stated that a fresh monetary policy that can meet the current requirements would offset the negative effects, improve liquidity and debt reorganization for households and companies. The bank insisted that the last two needs be enforced promptly.

Tourist arrivals are anticipated to increase at a lower than predicted rate, and exports are expected to decline. Private consumption is expected to stay gloomy due to easing household earnings in the services, manufacturing, and agricultural sectors, in addition to the increased household debt.

The bank further stated that its monetary policy committee would pursue tracking downside threats from the coronavirus outburst, postponed budget spending, and the dry spell that could turn out to be more dangerous than earlier estimated, along with global trade issues and geopolitical threats.

Prakash Sakpal, an economist at ING, anticipates the bank to slash the benchmark interest rate once again this year. Sakpal said, “We believe the BoT would want to remain ahead of the curve in its policy response to the evolving situation.”

Sakpal opined that another rate cut in the next meeting would be appropriate. “If so, another cut at the next meeting in March makes more sense as a timely, and probably more effective, boost to the economy.”

The rate cut is anticipated to keep the USD/THB bullish in the short-term.

baht - technical analysis - 6th Feb 2020

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Andrew Wright

Prior to founding in 2014, Andrew worked as a proprietary trader, then as a market maker. As a market maker, he traded options in over 100 stocks, he then began trading currency pairs in 2013. Andrew still actively trades both, and prides himself on educating and informing traders on the benefits of both Binary Options and Forex.

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