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BOT may focus on rising bad debts and leave key policy rate untouched

Jun 24. 2020
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By The Nation

The Bank of Thailand (BOT) is likely to leave the key policy rate unchanged during the Monetary Policy Meeting (MPC) today (June 24), analysts say, but warn about rising bad debts.

The MPC has cut key policy rates three times this year, from 1.25 per cent to 0.5 per cent, though most analysts expect the central bank to maintain its key policy rate. 

Somprawin Manprasert, chief economist at Krungsri Bank, believes the MPC will today unanimously vote to leave the key policy rate unchanged at 0.5 per cent. 

“It will be more interesting to watch how the central bank assesses the economic outlook and the quality of banks’ assets instead,” he said.  

The central bank’s assessment on the quality of banks’ assets may lead to more measures to address rising bad debts, he said.

BOT implemented pre-emptive measures on Friday telling commercial banks to hold off on paying interim dividend and buying back shares. 

Somprawin said the current economic situation has not changed and the inflation rate is not putting pressure on the monetary policy, adding that Krungsri Research has been monitoring the economy’s recovery route. He said he expects the economy and people’s income to recover gradually. 

He also said it is important for businesses to be resilient, and for them to have adequate capital to resume operations as the government relaxes lockdown restrictions, he said. 

Pipat Luengnaruemitchai, assistant managing director at Phatra Securities, shared similar views, saying that the rate will be left unchanged because the economic situation has not changed much compared to the previous time MPC met. Also, the rate cut in the committee’s last meeting went through with a narrow 4:3 vote. 

He said he expects the central bank to revise downwards its economic projection of 5.3 per cent contraction, because the pandemic has had a greater impact on tourism than previously thought. Phatra Securities, meanwhile, predicts an economic contraction of 9 per cent this year. 

“There are no foreign tourists now. Revenue from foreign arrivals accounted for about 12 per cent of the GDP. We don’t know when they will start returning to Thailand, so it has had a huge impact on the Thai economy,” he said. 

He also warned that the Bt1 trillion government stimulus, representing just 5 to 6 per cent of the GDP, may not help much.

Naris Sathapholdeja, head of TMB Analytics, also does not think the MPC will cut the rate today. 

He said the economy has bottomed out and will take time to recover. The central bank’s greatest worry now is financial stability. If the rate is far too low, then people will be driven to seek high yields and be willing to take higher risks, he said. 

The MPC may also want to keep its ammunition for use later in case there is a second-wave of Covid-19 infections. 

He said TMB has forecast a 5 per cent contraction this year, adding that though large revenue from foreign tourists is gone, domestic tourists may partially compensate for the shortfall.

Last year, revenue from foreign tourists came in at Bt1.9 trillion, domestic tourists Bt1.1 trillion, while Thai outbound tourists spent about Bt440 billion overseas. 

If the local big-spenders who go overseas choose to travel domestically, then domestic tourism may generate additional revenue for the country, he said. This way, he added, domestic tourism may stop the economy from shrinking further.

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