InfoQuest, (February 13, 2020) -- Mr. Wiratai Santiprapop, governor of the Bank of Thailand (BOT), revealed that the Monetary Policy Committee (MPC) cut the policy rate by 0.25 percent on February 5, as currently three major risks are weighing on Thailand's economic system. The outbreak of the novel coronavirus had a serious impact on the tourism industry and thus needs to be closely monitored. It is unclear how long it will take for the situation to return to normal and whether the outbreak will imperil other industries.
In addition, the fiscal 2020 budget, initially expected to be a key driver for Thailand's economy, has been delayed. The delay has affected government spending, particularly in the investment budget, and hit local economies.
And the drought remains a highly uncertain issue. Although the agricultural sector accounts for a small proportion of Thailand's GDP, the vast majority of Thais is engaged in the this sector. When the agricultural sector is hit by drought, domestic expenditure and consumption will shrink.
"The MPC has decided to lower the interest rate by 0.25 percent after assessing the economic data and the above risk factors as Thailand's economic system becomes increasingly vulnerable to multiple major risks at the same time. We must put the measure in place and send a clear signal as soon as possible," said the governor.
Mr. Wiratai admitted that the rate cut might not help too much as the interest rate has already dipped low and there is excess liquidity in the global market, so monetary policy alone cannot help address Thailand's economic problems. Fiscal, financial and institutional measures must be taken simultaneously.
He also pointed out that some financial institutions have started to follow suit, and believed that the rest of institutions will lower interest rates as well.
"Against such backdrop, the move to slash the interest rate by the MPC alone is insufficient to help solve problems or spur the economy. It is important that the fiscal department, the financial department and the financial institution work together to use the tools available to help support Thailand's economy through this difficult time," said Mr. Wiratai.
He also revealed that following the MPC meeting he discussed with Thai Bankers Association and senior executives of domestic commercial banks on measures to shore up debtors, especially small and medium-sized enterprises (SMEs) affected by the trade war and tourism operators in need of extra help. They will promote debt restructuring to help increase liquidity for operators whose revenue has suffered from considerable losses due to the novel coronavirus outbreak.
"Efforts should be stepped up to coordinate and implement various government measures. The Ministry of Finance has issued a number of measures to help increase liquidity for operators engaged in the tourism and related industries, and we must muster strength to implementing these measures to tide over this difficult period," Mr. Wiratai said.
The central bank has issued a circular to the heads of financial institutions, urging them to provide assistance to tourism operators and speed up debt restructuring. In addition, they should also provide assistance to those engaged in the tourism sector. The central back hoped that all financial institutions will attach great importance to this issue and set up special working groups to press ahead it.
"Financial institutions should set up special working groups to follow up the implementation closely and pay attention to all kinds of information to speed up the decision-making," Mr. Wiratai said.
Mr. Wiratai said the three risk factors include the outbreak of the novel coronavirus, a delayed budget for fiscal year 2020 and drought. The central bank's policies to respond to the situation is based on the data dependent principal. It assess various likely scenarios, and when finding the uncertainty is high, the impact is worse than expected and widespread, it will respond rapidly, rather than making decisions until the next MPC meeting.
Mr. Wiratai also admitted that Thailand's central bank is the first to cut its interest rate after the outbreak, some people might wonder on what information the decision is based, or considered it to be an overreaction, but the central bank believes that it will get harder to solve the problem if it does not respond actively and let things get worse.
"We took actions quickly, which is better than letting things get worse and have a bigger impact," Mr. Wiratai said.
He also stressed that the central bank still has policy space available, including policy rates and other additional measures, if the situation does not turn better.
"The measures that can be taken include the policy rate and other measures. In the case of a severe economic downturn, multiple instruments, not just financial ones (not only including the policy rate), should be utilized in a coordinated manner," said Mr. Wiratai.
The central bank will monitor the situation closely and a revision of its economic outlook may not come until the next MPC meeting in March 2020.
In addition, Mr. Wiratai mentioned the issue concerning the exchange rate of the Thai baht. Since the beginning of the year compared with other currencies in the region, the baht has weakened most, but the current exchange rate is still not in conformity with the fundamentals, because Thailand is facing a number of risk factors, especially the novel coronavirus outbreak and budget delay. The central bank stands ready to roll out additional measures if it detects any currency-related speculation which imperils the economy.
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