BANGKOK – Thailand’s central bank unexpectedly cut its benchmark interest rate for a third time in six months on Wednesday (Feb 5), taking it to a record low as a virus spreading from China puts further pressure on the struggling economy.
The Bank of Thailand’s (BOT) monetary policy committee voted unanimously to cut the one-day repurchase rate by 25 basis point to a fresh record low of 1.0 per cent, the lowest in Asia outside of Japan.
“The Committee viewed that the Thai economy would expand at a slower rate in 2020 than previously forecasted and much further below its potential,” the MPC said in a statement.
The virus outbreak, a drought and a delay in passing the fiscal budget would affect a large number of businesses and employment, it said.
Analysts say potential growth shocks emanating from China are raising the chances of further central bank policy easing in Asia.
The Bank of Japan’s deputy governor said earlier on Wednesday that it stands ready to ramp up stimulus if the economy is derailed, while several others have said they are closely monitoring the situation. The Philippines is expected to lower borrowing costs on Thursday.
Thailand is considered one of the most vulnerable economies in the region to the virus due to its heavy reliance on Chinese tourists and China trade.
The unanimous decision to cut the rate “underscores the severity and urgency of economic challenges,” said Kobsidthi Silpachai, head of capital markets research of Kasikornbank.
Charnon Boonnuch, an economist at Nomura in Singapore, said he expected the BOT to pause after three rate cuts of 75 basis points in this cycle.
“However, we see some room for more easing this year if growth continues to disappoint. There is still some room for the BOT to cut,” he added.
In a Reuters poll, 14 of 23 economists had predicted no rate change on Wednesday while the others forecast a quarter-point cut.
The BOT had cut the rate by a quarter-point each in August and November but left it unchanged in December.
Titanun Mallikamas, secretary of the BOT’s monetary policy committee, told a news conference that the economy was expected to grow less than the forecast 2.8 per cent this year.
Tourism in particular will likely be much slower than expected, he said.
Titanun did not answer when asked whether there was room to cut rates further.
The virus outbreak – which has sickened thousands in China and killed nearly 500 people – has compounded problems for Southeast Asia’s second-largest economy as its exports have been weak amid global trade tensions.
Revenues from tourism, another key growth driver, are expected to plummet after China banned tour groups from leaving the country to contain the spread of the disease.
Thailand may see 2 million fewer Chinese tourists than last year’s 11 million, according to the Tourism Authority of Thailand. China is Thailand’s biggest source of tourists, making up 28 per cent of the total last year.
A joint standing committee of industry, banking and commerce said on Wednesday the country’s tourism earnings may tumble by 108 billion baht to 220 billion baht (S$4.8 billion-S$9.8 billion) if the outbreak lasts for three to six months.
It also slashed its 2020 economic growth forecast to 2 per cent-2.5 per cent from 2.5 per cent-3 per cent projected last month.
In addition, some investments have been stalled due to delays in the 3.2 trillion baht budget, which is now pending a court ruling on its validity.