February 3, 2020 / 8:08 AM / 19 days ago

Thai central bank seen holding key rate but China virus a big wild card: Reuters poll

BANGKOK (Reuters) - Thailand’s central bank is expected to keep its benchmark rate at a record low this week, a Reuters poll showed on Monday, although growth has faltered and the spread of a new virus from China is adding to strains on the economy.

FILE PHOTO: Thailand's central bank is seen at the Bank of Thailand in Bangkok, Thailand April 26, 2016. REUTERS/Jorge Silva/File Photo

Fourteen of 23 economists in the poll predicted the Bank of Thailand’s (BOT) monetary policy committee (MPC) will keep its one-day repurchase rate THCBIR=ECI at 1.25% on Wednesday, a low last seen during the global financial crisis.

The others forecast a 25 basis-point cut, which would be the third reduction in borrowing costs in six months.

The rate was reduced by a quarter-point each in August and November before being left unchanged at December’s meeting.

A majority of analysts said the central bank might want to wait and assess the situation before taking further action.

Sujit Chaivichayachat, senior economist of Bank of Ayudhya, expects no rate cut this week but one in March.

“The central bank may be afraid of quickly using its weapons because if it has no big impact, it will be a waste,” she said.

Kobsidthi Silpachai, head of capital markets research of Kasikornbank, shared a similar view, saying “there are still too many moving parts to the virus situation to make a “panic cut”.

“It would be appropriate to signal that the MPC is closely monitoring the effects and is standing by to act”.

(GRAPHIC: Thailand's Policy rate, GDP and CPI - here)

On Friday, BOT senior director Don Nakornthab said the virus outbreak plus a delayed budget would have a significant impact on the BOT’s 2.8% growth outlook this year, with the biggest hit in the first quarter.

However, Charnon Boonnuch, economist at Nomura in Singapore, said a rate cut should come this week because of “rising downside risks to an already weakening GDP growth outlook”.

He said there was a slight probability of the BOT cutting its rate by half a point.

Tim Leelahaphan, economist of Standard Chartered, said an expected cut is “not pre-emptive, but reflects current lack of alternative policy tools.”

The outbreak has compounded problems for Southeast Asia’s second-largest economy as exports have already taken a hit from the Sino-U.S. trade war and sluggish global demand.

The Tourism Authority of Thailand expects the number of Chinese tourists to fall 2 million this year from last year’s 11 million, with an expected revenue loss of 95 billion baht (US$3.1 billion)

China is Thailand’s biggest source of tourists, making up 28% of the total last year, but it has barred tour groups from international travel in a bid to contain the spread of the virus.

Headline inflation is low, just 0.87% in December and below the BOT’s 1%-3% target range.

Additional reporting by Shaloo Shrivastava in Bengaluru; Editing by Kim Coghill

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