EIC expects a steady policy rate at 0.5% through next year if the outbreak does not become more severe and triggers a nation-wide lockdown

The MPC voted unanimously to maintain the policy rate at 0.5% and projected that the Thai economy would contract 6.6% in 2020, before expanding 3.2% and 4.8% in 2021 and 2022, respectively.

EIC expects the MPC to hold policy rate steady at 0.5% through 2021. This is due to 1) a gradual and uneven Thai economic recovery with greater downside risks and uncertainties, 2) rising debt burden among households and businesses, and 3) low inflationary pressures in 2021.

However, the BOT is expected to ease implemented financial measures by introducing other measures to distribute high level of liquidity in the financial system to the affected businesses and households. The measures include, for example, relaxing soft loan measure, credit guarantee scheme to curb credit risks, and encouraging financial institutions to expedit debt restruction to have a broader impact, and maintaining BSF and MFLF.

As Thailand is now included in the US Treasury’s monitoring list of currency manipulating countries, the BOT could face limitations in managing the baht in the period ahead. However, the new wave of the COVID-19 outbreak in Thailand poses greater downside risk to the Thai economic growth, EIC thus expects the baht against the USD to stay within the range of 29.5-30.5 at the end of 2021.