We at KResearch expect that the Monetary Policy Committee (MPC) will keep its policy rate steady at 0.50 percent during its meeting slated for September 23, 2020 to maintain the monetary policy space. The MPC may view that a policy rate cut to near zero is not necessary at this time because it cannot directly address current economic problems. As a result, it will likely maintain the policy rate until at least the end of 2020 if domestic economic conditions do not change significantly. The move is in alignment with monetary policy stances of other central banks, in particular the US Federal Reserves (Fed), which recently signaled to keep the Fed Funds rate near zero until at least 2023 after resolving to adjust its monetary policy strategy and long-run goals by adopting an Average Inflation Targeting in place of the fixed target level of inflation.
An urgent measure now may be geared towards boosting liquidity for businesses and households because it can directly address economic problems better than a policy rate cut. After the debt moratorium measure ended in October 2020, the Bank of Thailand (BOT) has introduced debt restructuring measures for borrowers in phases, such as debt consolidation. Looking ahead, the BOT may issue additional measures to continue helping various types of borrowers survive the COVID-19 crisis, which would in turn help alleviate NPL-related problems.
Aside from the MPC meeting's results, close attention must be paid to whether the BOT will revise its 2020 economic growth forecast or significantly change its views towards the Thai economy or not. If so, we expect that the GPD growth forecast will be revised downward slightly due to the lower-than-expected growth in the number of international tourist arrivals in Thailand, and the fact that budgetary disbursements have been behind the schedule.
Nevertheless, the Thai economy continues to experience increased downside risks, prompting the MPC to be more vigilant. In considering future monetary policy, the MPC may have to assess the viability of various financial and fiscal measures. If the situation gets much worse than prior estimates, the MPC may resort to new economic stimulus measures and additional policy rate cuts or even unconventional monetary measures.