AlwaysFree: Bank Of Thailand Needed To Preserve Limited Policy Room

Bank Of Thailand (BOT) chose not to cut the interest rate in the latest board meeting. The move was made because the monetary policy with a viewing point that fiscal policy should play a greater role could be used effectively. The BOT monetary policy committee has unanimously voted in keeping one-day repurchase rate at a steady stance after three times trimming down this year, with a record low of 0.50%. The committee also viewed the current record-low policy rate will be beneficial to support the economic recovery. The move of decreasing further in the policy rate in the current context would be less effective, as it could affect financial intermediation, increasing vulnerabilities in the financial system as a result from underpricing risks, and effect savings. 

The committee also feels the necessity to retain limited policy space, as a way to act effectively and appropriately in time, as economic activity is predicted to take more than two years to rebound to its pre-pandemic level. They also observed that a greater role in fiscal policy is much needed to support economic restructuration and recovery. 

The country also had launched an economic response package of THB1.9 trillion (US$60.96 billion), but the slow drawdown is reported. The Thai government also planned to announce more stimulus measure later next week as a way to cushion and support the economy going through its deepest contraction since the 1998 Asian’s financial crisis. BOT forecast the second-biggest Southeast Asia economy country would contract to a record of  -8.1% this year,  also scheduled to review it in next September 23 meeting.  

BOT committee considers that the Baht appreciation could make an economic recovery impact and would determine the necessity of other appropriate additional measures. The impact would be the flexibility on foreign currency transactions, encouraging balanced capital flows with increasing convenience, also by promoting the liberalizations of outward portfolio investments.

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