Forex - Thailand CB Review: BoT maintains monetary policy setting

Published at 07:59 (GMT) 10 Jun

In line with market expectations, Bank of Thailand voted unanimously to hold the key interest rate unchanged at 1.50%. This decision was made following two consecutive cuts in April and March from 2.00% in February. BoT commented following the policy announcement that the bank is ready to use remaining policy space if needed, and policy should remain accommodative. The bank also added that exports may contract this year though chances of deflation remains low and that any economic recovery will remain gradual. Addressing the past rate cuts, BoT remarked that the previous two cuts have helped domestic conditions. The retrospective comment is in line with previous view that the interest rates remains effective policy tools with good pass-through effects on the foreign exchange movements. Following the April MPC meeting, the USD/THB pair rallied from 32.60 levels to a high of 33.89 in the week that followed.

With the suggestion by BoT that further cuts will not be ruled out, export receipts and domestic growth will be the determining factors as to whether the market will be seeing another cut anytime soon. Growth concerns remain the top priority of the bank with sluggish performance seen since the start of the year, and while we do not discount further cuts given the southward trend of most economic indicators, the marginal cost of further easing becoming increasingly steep.

On FX, USD/THB slipped from 33.725 levels following the BoT announcement on THB short covering but bounced on 33.620 lows, with traders hoping for yet another rate cut severely disappointed. SETi last seen +0.9%.