Thailand slashes growth and export forecasts again, holds key rate

Credit: REUTERS/© Jorge Silva / Reuters

Thailand's central bank left its benchmark interest rate unchanged on Wednesday while cutting its forecast for 2019 economic growth and predicting exports will shrink this year, hurting domestic demand.

By Orathai Sriring and Kitiphong Thaichareon

BANGKOK, Sept 25 (Reuters) - Thailand's central bank left its benchmark interest rate unchanged on Wednesday while cutting its forecast for 2019 economic growth and predicting exports will shrink this year, hurting domestic demand.

The Bank of Thailand (BOT)'s monetary policy committee (MPC) voted unanimously to keep the one-day repurchase rate THCBIR=ECI at 1.50%.

The BOT trimmed its 2019 GDP growth forecast to 2.8% from 3.3% seen in June.

Exports, a key driver of economic growth, are now expected shrink 1% this year, compared with no increase seen earlier.

It's the fourth time in nine months that economic forecasts were cut.

Thailand is facing sagging growth, below-target inflation, a climbing baht, risks to financial stability, lower growth of tourism and sinking consumer confidence.

Wednesday's downgrades of forecasts "are not a surprise", said Thammarat Kittisiripat, economist of Tisco group. "If downside risks do not deteriorate, the policy rate will probably stay unchanged for the rest of the year."

POOR OUTLOOK?

But Capital Economics, which had expected a cut on Wednesday, said it still predicts one before the year-end given "the poor outlook for the economy".

The MPC committee said the current policy rate remains "accommodative" and should contribute to growth and support a rise in headline inflation.

"Financial stability risks had already been addressed to some extent, although there remained pockets of risks that warranted monitoring.

The BOT also expressed concern about the strength of the baht THB=TH, Asia's best performing currency this year, with a rise of nearly 6.5% against the U.S. dollar.

Thirteen of 20 analysts in a Reuters poll had predicted no policy change, while the others saw a 25 basis-point cut.

In August, the MPC unexpectedly voted 5-2 to cut the rate by a quarter point, the first easing since April 2015.

Sarun Sunansathaporn, Bank of Ayudhya economist, said Wednesdays' unanimous vote suggested a smaller chance of a second rate cut this year, but called one is not enough" and predicted another by December.

On Sept. 19, Indonesia cut rates for a third straight month to aid growth, while the Philippines will likely make its third cut this year on Thursday.

In April-June, Southeast Asia's second-largest economy grew 2.3%, the weakest annual pace in almost five years, as exports slumped.

ING sees similar growth in the current quarter and has cut its full-year 2019 growth outlook to 2.5% from 2.8%.

To try to boost the economy, the government launched $10 billion stimulus measures last month, and Finance Minister Uttama Savanayana said more can be done if needed.

The central bank cut its 2019 headline inflation projection to 0.8% from 1.0% seen earlier.

The BOT now predicts 39.7 million foreign tourists this year, compared with 39.9 million forecast three months ago.

TEXT of the Monetary Policy Committee statement

Asian central bank policy rateshttp://tmsnrt.rs/1U5hc2W

Thai Policy interest rate, GDP and CPIhttps://tmsnrt.rs/2lytFoI

(Additional reporting by Satawasin Staporncharnchai; Editing by Richard Borsuk)

((orathai.sriring@tr.com; +662 6489729; Reuters Messaging: orathai.sriring.thomsonreuters.com@reuters.net))

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