Thailand cuts key rate for third time as economic crisis worsens

BANGKOK (BLOOMBERG) – The Bank of Thailand cut its benchmark interest rate for the third time this year to a record low as the economy is expected to shrink further amid the coronavirus pandemic.

The central bank lowered the policy rate by 25 basis points to 0.5 per cent on Wednesday (May 20), by a 4-3 vote, the third cut in its last four meetings. Of 24 analysts in a Bloomberg survey, 21 correctly predicted the decision, with the rest expecting no change.

Thailand’s economy contracted the most since 2011 in the first quarter as the pandemic hit hard on the nation’s two key drivers – exports and tourism. The state planning agency earlier this week forecast the economy would contract as much as 6 per cent this year, the worst economic performance since the Asian financial crisis more than two decades ago.

The tourism outlook remains bleak with Thailand’s borders mostly closed as part of a state-of-emergency order imposed in March that lasts through May. Most inbound international flights are banned until the end of June.

The monetary policy easing adds to the government’s fiscal stimulus, which the World Bank estimates at 15 per cent of GDP, among the highest in the region. That includes US$12 billion (S$17 billion) in emergency cash handouts to encourage consumer spending.

The government began easing some restrictions in early May, with shopping malls and retail businesses allowed to reopen since last weekend. Still, the pace of recovery will likely depend on how quickly external drivers such as exports and tourism revive.

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