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Thailand’s central bank kept its key rate unchanged on Wednesday, signaling the need to preserve political space as the country grapples with its biggest wave of Covid cases and a weakening outlook for the tourism-dependent economy .

the The Bank of Thailand’s rate setting committee unanimously decided to keep rates at a record 0.5% for a ninth consecutive meeting, as expected by 25 economists in a Bloomberg survey.

The committee “stands ready to use limited political space at the most effective time,” said Bank of Thailand deputy governor Titanun Mallikamas. “Lending and debt restructuring will be more targeted to help businesses and households than to cut interest rates.”

The central bank also cut its forecast for gross domestic product growth in 2021 to 1.8%, from 3% previously, citing the precipitous decline in tourism during the pandemic. The government plans to Fully reopen Thailand’s borders to foreign visitors in October, taking a calculated risk to stimulate the economy.

The baht continued to decline after the meeting, down 0.4% to 31.85 per dollar at 4:32 p.m., while the benchmark stock index closed 0.4% lower.

Start to reopen

Prime Minister Prayuth Chan-Ocha moved this week to allow more social activity in the capital, even if the deaths linked to Covid hit a record Wednesday. About 11% of the population had received at least a first dose of the vaccine on Monday.

The vaccination campaign will be critical to the economy, Titanun said at a briefing in Bangkok. Any recovery in the labor market will be slower than in the past and could be W-shaped – rather than a soft rebound – as the market is now more fragile.

“The crux for Thailand is really quite simple – how fast it can immunize its people,” said Howie Lee, an economist at Oversea-Chinese Banking Corp. in Singapore. Reaching 100 million doses this year would mean accelerating the current rate by around 80%, but “supply constraints are the biggest challenge in reaching this holy grail”.

The urgency of reopening Thailand stems from its dependence on tourism, which contributed about a fifth of economic output before the pandemic. The Cabinet gave on Tuesday final approval of the Phuket ‘sandbox’, which will allow vaccinated visitors to travel without quarantine to the popular tourist island from July 1.

What Bloomberg Economics Says …

“The Bank of Thailand’s unanimous grip on rates, despite sharp cuts in already weak growth projections, suggests significant reluctance to exhaust its remaining 50 basis points of conventional policy space or deploy QE. We no longer expect rate cuts during this cycle.

– Tamara Mast Henderson, Asean economist

The 1.8% growth forecast is based on the assumption that the new wave of Covid cases will be contained by the end of the third quarter and that the country will achieve herd immunity early next year, a Titanun said in response to further questions.

“The key issue is the procurement and distribution of vaccines to reduce the economic risk, especially during the turn of the next four to six months,” he said. “The current government vaccination plan has made some progress, but the economy still faces the risks of a possible serious epidemic both locally and abroad due to mutated variants and reduced vaccine efficacy. . “

The bank’s deterioration in GDP follows similar measures by the finance ministry and the country’s main economic planning agency. The government on June 1 approved new stimulus packages worth 140 billion baht ($ 4.4 billion), including cash distributions and co-payment programs. Parliament approved $ 16 billion this month borrowing plan to meet financial needs.

“The government should speed up the disbursement of relief and other budget support measures” and address vulnerabilities in the labor market, Titanun said. “In the meantime, monetary policy must remain accommodative.”

Change the backdrop

The central bank had previously announced a limited moratorium on debt until the end of the year to help small and medium-sized businesses affected by the epidemic. He will decide later this year to extend the obligatory contribution of lenders to a rescue fund for financial institutions.

“We believe the room for maneuver to remain accommodative will narrow as global central banks move closer to normalizing monetary policy,” Standard Chartered Plc economist Tim Leelahaphan said. “The main challenge for the Bank of Thailand over the next 12 months will be to maintain a relatively flexible position to support the domestic economy in the context of changing global monetary policy.”

Other key points from Wednesday’s briefing:

  • The central bank lowered its GDP forecast for 2022 to 3.9%, from 4.7% expected in March
  • The forecast for tourist arrivals this year, already reduced several times, has again been lowered to just 700,000, from 3 million previously. Bank projects 10 million tourists next year, less than half of previous forecasts
  • Bank says baht, down 6% against dollar this year, is weaker than other regional currencies
  • Bank expects headline inflation of 1.2% this year and next
  • Bank projects current account deficit of $ 1.5 billion this year, compared to the surplus of $ 1.2 billion expected earlier
  • The bank raised its export forecast this year to 17.1% growth, from 10%, and now expects imports to increase by 22.7%, from 15.2% earlier.

– With the help of Randy Thanthong-Knight, Michael J Munoz, Anuchit Nguyen, Prim Chuwiruch and Chester Yung

(Update market movements in the fifth paragraph, analyst commentary in the eighth paragraph)