Mr. Titanun Mallikamas, Secretary of the Monetary Policy Committee (MPC), announced the outcome of the meeting on 23 September 2020 as follows.
The Committee voted unanimously to maintain the policy rate at 0.50 percent.
In deliberating their policy decision, the Committee assessed that the Thai economy would contract in 2020 slightly less than the previous forecast, but would expand in 2021 at a lower rate than previously forecasted mainly due to the slow recovery of foreign tourist figures. The Committee would also monitor risks of the second wave of the outbreak. Meanwhile, headline inflation would be less negative this year than the previous assessmentand would rise gradually in 2021. Financial stability was more vulnerable given the economic outlook. The Committee viewed that the extra accommodative monetary policy since the beginning of the year as well asthe fiscal, financial, and credit measures additionally announced helped alleviate adverse impacts,and would support the economic recovery after the pandemic subsided, facilitate the return of inflation to the target, and reduce financial stability risks. The Committeethus voted to maintain the policy rate at this meeting. The Committee viewed that financial institutions should expedite debt restructuring for households and businesses to have a more meaningful impact.
The Thai economy would contract in 2020 slightly less than previously forecasted, but would expand in 2021 at a lower rate than the previous forecast mainly due to the slow recovery of foreign tourist figures. Domestic demand, both private consumption and private investment, were expected to improve somewhat while the labor market remained fragile. Employment and household incomes remained weak and would take time to recover, which would result in deteriorating household debt service capability and in turn affect private consumption in the period ahead. Overall economic activities would take at least two years before returning to the pre-pandemic level. Nevertheless, the recovery would significantly vary among economic sectors and firms in different segments. The Committee thus viewed that going forward government policies from various agencies needed to be more targeted and timely. Such policies should continuously promote employment, economic restructuring, and economic recovery. Policy coordination among government agencies would be crucial to ensure coherent and consistent measures, namely, fiscal measures as the main driving force of the economy, together with continued accommodative monetary policy, as well as financial and credit measures to support liquidity. The government policies should emphasize on supply-side policies to support the changing economic structure, patterns of business operations, and labor skill development consistent with the post-COVID environment in order to ensure a sustained economic recovery.
The annual average of headline inflation would be less negative in 2020 than the previous assessment on the back of increasing energy prices as demand rose after the relaxation of COVID-19 containment measures. Core inflation would remain subdued at a low level. However, given the economic recovery, headline inflation would gradually rise and stay close to the lower bound of the target range in 2021. Medium-term inflation expectations remained anchored within the target.
Commercial bank lending rates and government bond yields remained at low levels. Meanwhile, corporate bond spreads started to decrease for bonds with high credit ratings. Commercial bank loans expanded on the back of large corporate and retail loans. Meanwhile, contraction in SMEloans improved owing partly to government credit measures and loan repayment holiday. With the level of overall liquidity in the financial system remaining ample, the Committee deemed it important that liquidity be better distributed to affected businesses and households. Regarding exchange rates, although the baht depreciated against the US dollar and most regional currencies since the previous meeting, the Committee viewed that if the baht were to appreciate rapidly, the economic recovery could be affected. Therefore, the Committee would closely monitor developments in foreign exchange markets as well as assess the necessity of implementing additional appropriate measures.
The financial system remained sound despite increasing vulnerabilities given the economic outlook. Commercial banks had robust capital fund and loan loss provision levels. Nevertheless, there remained a need in the period ahead to cope with the impacts from the highly uncertain COVID-19 situation and the increased risks from deteriorating debt service capability of businesses and households. The Committee viewed that commercial banks should expedite debt restructuring for retail borrowers and businesses to a wide extent and accelerate lending under various measures to address liquidity problems in a targeted and timely manner consistent with business restructuring.
Looking ahead, the Committee would monitor developments of economic growth, inflation, and financial stability, together with associated risks, including external risks, the impacts of the COVID-19 pandemic, and the effectiveness of the fiscal, financial, and credit measures, in deliberating monetary policy going forward. The Committee would stand ready to use additional appropriate monetary policy tools if necessary.
Bank of Thailand
23 September 2020
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