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7 Aug 2019

Financial Institutions

MPC Cuts Policy Rate for the First time in 4 Years … Its Impact on Economy Warrants Close Monitoring Ahead (Current Issue No.3017)

  • Thailand's Monetary Policy Committee (MPC) voted 5-2 to cut the benchmark rate for the first time in four years to 1.50 percent, from 1.75 percent, at its meeting, August 7, 2019. The MPC attributed its move to the weakening signs seen in the export sector and domestic demand, which have caused the Thai economy overall to grow at a slower pace than previously assessed, and the fact that headline inflation has remained at the lower end of its inflation target band.   
  • The MPC's latest policy rate cut synchronized those of the Fed and other central banks, which had gradually eased their monetary policies to brace for global economic risks amid uncertainties surrounding multiple issues, in particular the US-China trade war.  
  • KResearch views that close attention must be paid to two factors that could dictate the Bank of Thailand's  monetary policy implementation: 1) The pace of transmission mechanisms through which the monetary policy is implemented, sizes of interest rate cuts by financial institutions, rate of return in the debt market, responses of economic systems in various sectors towards the latest rate cut; and, 2) Uncertainties surrounding risks that may stem from abnormal conditions, including the US-China trade war, President Trump's foreign policies and incidents in Thailand, because they could detail the Thai economic recovery.

The post-MPC meeting statement shows that the MPC gives weight to various downside risks affecting the Thai economy. Therefore, the financial and capital markets will continue to monitor the MPC's assessment on those risks and future economic conditions as it will likely signal the MPC's monetary stance, going forward.



Financial Institutions