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Thailand Central Bank Unexpectedly Cuts Key Rate

thailandbank dec19 05feb20 lt

Thailand's central bank slashed its key interest rate unexpectedly on Wednesday, citing a weaker-than-expected outlook, partly due to the Wuhan coronavirus outbreak.

The Monetary Policy Committee voted unanimously to cut the policy rate by 25 basis points to 1.00 percent, the Bank of Thailand said in a statement.

Economists had expected the bank to leave the rate unchanged for a second policy session in a row.

The key interest rate was last cut in November, by 25 basis points.

"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 bank said.

"Headline inflation was projected to be below the lower bound of the inflation target throughout the forecast horizon."

Policymakers assessed that financial stability has turned more vulnerable due to the prospect of economic slowdown and hence, there was an urgent need to coordinate monetary and fiscal measures.

A more accommodative monetary policy stance would alleviate the negative impacts, support liquidity provision and debt restructuring for businesses and households, the bank said. The latter two must be urgently implemented, the bank added.

Tourist arrivals are expected to grow at a slower than forecast rate and exports are forecast to fall. Private consumption is expected to remain subdued due to moderating household income in the services, agricultural, and manufacturing sectors as well as by elevated household debt.

Policymakers would continue to monitor the downside risks from the coronavirus outbreak, the delayed budget disbursement, and the drought that could be more severe than previously assessed, together with trade tensions and geopolitical risks that remained highly uncertain, the bank said.

ING economist Prakash Sakpal expects the bank to cut the key rate one more time this year.

"We believe the BoT would want to remain ahead of the curve in its policy response to the evolving situation," Sakpal said.

"If so, another cut at the next meeting in March makes more sense as a timely, and probably more effective, boost to the economy."

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