By Kitiphong Thaichareon and Orathai Sriring
BANGKOK (Reuters) – Thailand’s central bank still has monetary policy space to help the economy if necessary, its governor said on Thursday, a day after cutting the benchmark policy rate to a record low.
“If the situation worsens, we are still able to use policy space … both the policy rate and other measures,” Veerathai Santiprabhob told a seminar.
On Wednesday, the Bank of Thailand (BOT) unexpectedly cut its policy interest rate <THCBIR=ECI> by 25 basis points to a record low of 1.00%, citing expected drags on the economy from a virus outbreak spreading from China, delays to Thailand’s fiscal budget and a drought.
With rates already so low, financial markets are wondering what more the central bank can do to fend off growing risks with conventional policy tools. Several analysts expect one more rate cut this year.
Thailand was the first central bank to cut benchmark rates after the virus outbreak because the policy committee felt the sooner it took action, the better, Veerathai said.
However, the rate cut may not help the economy much because rates were already very low and there is ample liquidity in the banking system, he said.
But “it’s a sense of emergency that we needed to take action and send a clear signal” that all need to cooperate to help solve economic problems, Veerathai said.
He said he hoped commercial banks would follow suit. Kasikornbank <KBANK.BK> cut its retail lending rates by 25 basis points from Thursday.
(GRAPHIC: Thai Policy rate, CPI and GDP – https://fingfx.thomsonreuters.com/gfx/mkt/13/1816/1785/Thai%20policy%20rate%20and%20GDP.png)
On the baht, Veerathai said although it has weakened and became Asia’s worst performing currency this year, it is still not in line with economic fundamentals and will continue to face high volatility.
The central bank is ready to introduce additional measures if there is speculative trade in the currency, he said.
The central bank will also further relax rules to spur capital outflows, Veerathai said.
He said the finance minister on Wednesday had approved a previously announced plan to raise the limit of earnings overseas that exporters can keep to $1 million per lading bill from below $200,000. The rule will need to be published in the royal gazette before being effective – a formality.
((Click for recent rules https://www.bot.or.th/English/PressandSpeeches/Press/2019/Pages/n6662.aspx))
The baht rose nearly 9% in 2019, but it has weakened about 4% against the dollar so far this year, as the virus outbreak hurts Thailand’s lucrative tourism sector. Chinese account for the largest share of the country’s visitors.
Thai exports, a key growth driver, have been weak amid global trade tensions. A drought also is hurting farmers and their purchasing power, Veerathai said.
Some investment has been stalled by the delayed 3.2 trillion baht ($102.86 billion) fiscal budget, which is pending a court ruling on its validity on Friday.
Deputy Prime Minister Somkid Jatusripitak told reporters on Thursday that if the budget bill is effective, spending should start in May, at the earliest.
If needed, the government is ready to borrow or launch an infrastructure fund to finance investment projects, he said.
Finance Minister Uttama Savanayana said there was still fiscal policy space to use as appropriate.
(Additional reporting by Satawasin Staporncharnchai; Editing by Raju Gopalakrishnan)