The Bank of Thailand (BOT) has lowered its GDP projection for 2020 down from a contraction of 5.3 per cent to a recession of 8.1 per cent on Wednesday.
The Monetary Policy Committee (MPC) has also decided to maintain the policy interest rate as expected.
Titanun Mallikamas, BOT’s Assistant Governor, said all seven members of the MPC voted unanimously to maintain the country’s benchmark lending rate at 0.5 per cent.
The central bank has already cut the rate three times in the first half of 2020 from 1.25 per cent at the beginning of the year to the current unprecedented low level to support the economy during the coronavirus outbreak.
“The MPC assessed that the Thai economy in 2020 has the potential to contract more than previously estimated as the impact from the outbreak of COVID-19 is more severe than expected,” he said.
However, the MPC said countries that have managed to control the outbreak, such as Thailand, should be able to begin to recover in the second half of 2020.
They added that the low level of interest rates, BOT’s measures to help debtors, and government stimulus measures should be able to support economic recovery as well.
BOT has also increased its GDP projection for 2021 from an expansion of 3 per cent to a growth of 5 per cent instead.
“Thailand’s economy is expected to contract the most in the second quarter which has already passed,” Titanun said.
UPDATE
The Stock Exchange of Thailand (SET) index lost 26 points during the afternoon session following the news that the central bank has lowered its GDP projection to a recession of 8.1 per cent.
The reduction in estimation was greater than the market expected.
SET was trading at 1365 after the intermission before the news broke out shortly after 14:00pm, which sent the index down by 26 points to 1339 as of 15:15pm.
At the time of writing, the index was trading at 1335 as of 16:25pm, down by 21 index points or 1.58 per cent from the opening of 1356 this morning.
Apart from the lowered projection, the index is also still under pressure from the sellout of banks’ shares that have been affected by the BOT’s decision to stop them from paying out interim dividends in August.
The MPC’s decision to maintain the country’s benchmark lending was as the market expected.
Brokers are now saying that maintaining the policy interest rate this round would allow the MPC to make another cut in the third quarter, if needed.
The BOT said that MPC members’ decision was made based on the facts that the outbreak has significantly affected tourism and merchandise exports.
At the same time, domestic demand, both private consumption and private investment, would also contract more than they previously assessed in 2020.
The central bank now expects export value to contract by 10.3 per cent instead of 8.8 per cent. Import value is also expected to contract by 16.2 per cent instead of 15 per cent.
For tourism, the BOT is now expecting only 8 million visitors compared to 39.8 million last year.
Domestic consumption is expected to contract by 3.6 per cent instead of 1.5 per cent.
The reduction of projection was the most drastic for domestic investment which has been lowered from a contraction of 4.3 per cent to the current estimate of a 13 per cent contraction in investment activities. This is compared to the previous expansion of 2.8 per cent in 2019.
Only the government’s consumption and investment are expected to expand by 3.8 per cent and 5.8 per cent in 2020.
Employment and income were also projected to decline.
However, the MPC said economic activities have exhibited signs of improvement following the relaxation of the containment measures and the low level of interest rates would support the recovery of businesses.
“The committee viewed that the Thai economy needed to have additional supply-side policies to support the changing economic structure and patterns of business operations consistent with the post-covid environment,” BOT’s statement read.
The MPC has also said that they are concern over the baht that has strengthened which could affect the economic recovery.
The baht was trading around 30.8 baht per greenback on Wednesday afternoon, heading closer to its value at the beginning of the year when it was trading around 30 baht per US dollar.