Analysts worry about competitive easing as BOT cuts policy rate

[snoop1130]

Analysts worry about competitive easing as BOT cuts policy rate

By Wichit Chaitrong
The Nation

 

 

The Bank of Thailand’s Monetary Policy Committee (MPC) on Wednesday (August 7) made a surprise decision to cut the policy interest rate amid an economic slowdown and the heightened trade war between the US and China.

 

The MPC cut the interest rate by 25 basis points to 1.5 per cent.

 

Of the seven-member committee, five voted for the cut while two voted to maintain the rate at 1.75 per cent.

 

The baht has been one of the strongest currencies in the region while the Chinese yuan has been weakening.

 

The baht and Thai government bonds are considered by foreign investors as safe-haven. The baht ranks 15th among the strongest currencies.

 

The Thai currency has appreciated against the US dollar by about 5 per cent since early this year while it has gained 8 per cent against the yuan.

 

Exporters and even overseas Thai workers have recently expressed worries about the stronger baht.

 

Economists had expected the MPC to maintain the policy rate at today’s meeting.

 

Kobsidthi Silpachai, the head of capital markets research at Kasikornbank, said the central bank aims to prevent further appreciation of the baht and shore up the economy.

 

After the news of a rate cut, the baht immediately weakened to Bt30.89 per dollar from 30.75 before the rate cut, then it rebounded to Bt30.82 at around 3pm.

 

“It may not help much if other central banks follow suit and it could lead to competitive easing, comparable with the competitive devaluation during the 1997 financial crisis,” Kobsidthi said.

 

New Zealand’s central bank cut its rate to 1 per cent from 1.5 per cent on Wednesday morning while India’s central bank also cut its rate by 35 basis points from 5.75 per cent to 5.40 per cent.

 

“We suspect that the central bank’s decision to cut the policy rate to 1.5 per cent today is a result of the strong baht,” said Tim Leelahaphan, an economist with Standard Chartered Bank.

 

“However, in a similar way to the Bank of Thailand’s past measures to prevent the baht from appreciating further, it may take some time for the lowering of the rate to have an impact on the baht’s strength.”

 

He pointed out that, also on Wednesday, the New Zealand and Indian central banks cut their interest rates, deepening the trend of global monetary easing after the US Federal Reserve reduced its benchmark rate on July 31.

 

These actions put further pressure on the baht to appreciate, giving the Bank of Thailand an incentive to lower interest rates in an attempt to keep the baht’s strength in line with that of the currencies of the country’s neighbours, he said.

 

Furthermore, the central bank’s decision to lower the policy rate may reflect an attempt at policy synchronisation with the government’s efforts to stimulate consumer spending, he said, referring to the speculation that the new government will implement economic stimulus measures to boost such spending before the year’s end.

 

Source: https://www.nationthailand.com/business/30374413

 

-- © Copyright The Nation Thailand 2019-08-07

Follow Thaivisa on LINE for breaking Thailand news and visa info

[FarFlungFalang]

Fasten your seat belts and assume the brace position.We might experience some turbulence.

Edited August 7, 2019 by FarFlungFalang
Add Text

[Roy Baht]

Smells like Tom Yum Goong is cooking

[canopus1969]

Hmmm even less interest on any money in the bank   ????

[kevin612]

Hopefully it will lower the baht

[Cadbury]

12 hours ago, snoop1130 said:

The Bank of Thailand’s Monetary Policy Committee on Wednesday made a surprise decision to cut the policy interest rate

Official interest rate reduction is one of the usual methods of manipulation of the the currency to reduce it's international value. It took them long enough to get the message. They must have been reading the outpourings in the TVN.

Wait and see what happens now.

[pegman]

Not nearly enough. 

[Srikcir]

54 minutes ago, Cadbury said:

Official interest rate reduction is one of the usual methods of manipulation of the the currency to reduce it's international value.

What struck me is that -

• In a Reuters poll, 14 of 15 economists had predicted no rate change on Wednesday while the other forecast a quarter-point cut. https://forum.thaivisa.com/topic/1116465-thai-central-bank-surprisingly-cuts-key-rate-worried-by-baht-strength/?utm_source=newsletter-20190808-0740&utm_medium=email&utm_campaign=news

In previous polls economists predicted a rate cut that never occurred. Now that community seems to finally concede a rate change will not be driven by economic principles. But then an outlier economist is right. This seems to reinforce the suspicions of the academic community that the rate change is driven by political principles.

[Eric Loh]

I don't think that 25 bps cut was significant. It's more a correction of the unnecessary 25 bp raise that the BOT unexpectedly hike last Dec. I think BOT made a poorly calculated hike and need to be corrected in view of economic headwinds.  

[weegee]

1 hour ago, Cadbury said:

Official interest rate reduction is one of the usual methods of manipulation of the the currency to reduce it's international value. It took them long enough to get the message. They must have been reading the outpourings in the TVN.

Wait and see what happens now.

Hang on tight, if you can, until October-November before you decide on anything Financial....AUD will change noticeably about then.

Edited August 8, 2019 by weegee

[bert bloggs]

1 hour ago, kevin612 said:

Hopefully it will lower the baht

well the pound went down against the baht ,so less interest on my Thai savings and less for my pound .

[DrTuner]

And Yahoo says .. USDTHB (-0.1949%). Just too much Chinese laundering flowing in.