No Rate Cut Yet

Tussle With Mighty Baht

By Suttinee Yuvejwattana (Bloomberg)
July 17, 2019, 12:00 PM GMT+7 Updated on July 17, 2019, 2:45 PM GMT+7

• BOT plans to ease rules on money outflows, may cut bond supply
• Reducing the key rate may have only limited impact, bank says

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Veerathai Santiprabhob Photographer: Pailin Wedel/BloombergThe Bank of Thailand reiterated its concern about the baht’s persistent strength on Wednesday, but said cutting the key interest rate may have only a limited impact in dealing with the currency’s ascent and instead flagged a preference for using a range of tools.

The bank plans to ease rules on money outflows by giving more flexibility for portfolio investment by Thai investors, Deputy Governor Mathee Supapongse said at a briefing in Bangkok. Reducing the bond supply is also among the tools officials are ready to use, according to Governor Veerathai Santiprabhob.

“Interest rates alone can’t fix all problems,” Veerathai said. “Every policy comes with costs. No policy is free, so we have to consider them carefully and look at whether they suit the situation at that time.”

The central bank last week took steps to curb short-term inflows and restrict the currency’s surge, concerned that a stronger baht will further damage an export-reliant economy that’s already been hit by weaker global demand and trade tensions. The BOT last month lowered its growth projection for 2019 to 3.3% from 3.8% and forecast zero expansion in exports.

“We have avoided using broad-based measures and try to use measures that directly address problems,” Veerathai said when asked about the possibility of imposing capital controls. Still, he reiterated that the central bank is ready to adjust the key rate if economic conditions fail to meet expectations.

The baht has gained 7.6% against the dollar in the past 12 months, making it among the best performers in emerging markets tracked by Bloomberg.
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Cutting the key rate may have limited impact as Thailand’s real rate is low versus regional countries, Veerathai said. The bank is closely tracking the currency, which has been boosted by a high current account surplus, he said.

Veerathai had said July 8 the BOT was ready to adjust rates to respond to risks, raising the prospect of a possible cut in coming months following December’s hike. Regional central banks from India to Australia have eased policy this year to bolster their economies amid a worsening global slowdown.

The briefing came amid a transition, with the military-led administration that’s been in power for five years giving way to a civilian government, albeit one still headed by the Prime Minister Prayuth Chan-Ocha, a former general who led a coup. The new team will present policy priorities next week.

The BOT “is waiting to see the new government’s economic stimulus packages and see how much that can prop up the economy first,” said Kampon Adireksombat, head of economic and financial market research at Siam Commercial Bank Pcl. Cutting rates will probably be the last option, he said.