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Central bank won’t cut rate again, nods to govt

Mar 25. 2020
Committee secretary Titanun Mallikamas
Committee secretary Titanun Mallikamas
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By The Nation

The Bank of Thailand has decided to leave the benchmark policy rate unchanged at 0.75 per cent, saying it’s the government’s turn to take the lead role after the central bank in recent days cut the rate and introduced credit facilities for the bond market.

The bank’s Monetary Policy Committee on Wednesday (March 25) voted 4-2 to maintain the policy rate at 0.75 per cent, with the two objectors suggesting it come down further, to 0.5 per cent. 

Committee secretary Titanun Mallikamas said a seventh member was unable to attend the meeting.

The 4-2 vote carried on the fact that the policy rate cut on March 20 by 25 basis points to 0.75 per cent has returned financial stability to a market disrupted by the Covid-19 virus, Titanun said.

The central bank and government have been addressing the issue of market liquidity and helping people affected by the virus outbreak with urgent measures, including debt restructuring for households and businesses, especially small and medium-sized enterprises, he pointed out.

The government has also extended a financial aid package to laid-off workers.

Most committee members agreed that the virus crisis will continue for a while longer, so resources should be directed at resolving liquidity issues and restructuring debt. The two dissenters warned of a severe economic downturn unless there is a further rate cut.

The committee expects the economy to contract sharply this year because tourism and exports have been hit hard by the global slowdown and supply-chain disruption. As Thai businesses suffer, private investment and private consumption are also withering.

“Given this current situation, fiscal measures should take the lead role in shoring up the economy and supporting those affected by the Covid-19 outbreak,” the committee said in a formal statement.

Debt restructuring should help borrowers and the economy could begin to grow again next year, it said. Meanwhile lower oil prices will keep the inflation rate negative this year.

Liquidity in the bond market improved after the central bank announced credit facilities on Sunday.

The baht has weakened against major competitors’ currencies and remains subject to high volatility, but Thailand has substantial international reserves. 

Titanun said the committee must continue monitoring the financial and exchange markets closely because of high lingering uncertainty.

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