By Orathai Sriring and Kitiphong Thaichareon
BANGKOK (Reuters) – Thailand’s central bank will lower its economic growth forecasts for this year and next, a deputy governor said on Wednesday, and still has monetary policy space for action to support the economy despite cutting its key interest rate to a record low.
Southeast Asia’s second-largest economy is not in a crisis, however, as the country’s economic fundamentals and banks remain strong, said Deputy Bank of Thailand Governor Mathee Supapongse.
The central bank will review its 2019 and 2020 economic growth forecasts – currently at 2.8% and 3.3%, respectively – at its next monetary policy meeting on Dec. 18.
“They will likely come down, but by how much will depend on latest economic data at that time,” Mathee told Reuters in an interview.
Thai exports have been hit by global trade tensions and the strength of the baht – Asia’s top performing currency this year – has further put pressure on the trade-reliant economy.
Last week, the BOT’s monetary policy committee (MPC) cut its policy rate by 25 basis points to 1.25%, a record low last seen during the global financial crisis.
“Monetary policy is data-dependent. Our rough forecasts suggested growth and inflation would be less than expected, so the committee thought monetary policy should be eased further,” Mathee said.
He added that the MPC had got “ahead of the curve” by acting before official third-quarter gross domestic product (GDP) data is released next Monday by the state planning agency.
Although July-September growth is expected to be lower than the BOT’s forecast, it should be higher than the second quarter’s 2.3% pace, which was the weakest in nearly five years, and there should be no quarter-on-quarter contraction, he said.
Last week’s rate cut, the second in three months, prompted commercial banks to lower borrowing costs, and Mathee said that should help the economy, purchasing power and inflation.
Although the policy rate is now at a record low of 1.25%, there is still room to help the economy if necessary, said Mathee, who is a member of the central bank’s policy committee.
“I think it’s not a limitation that we have reached the bottom already,” he said, adding that Thailand had no need to cut the key rate to zero, as other measures and fiscal policy were also helping.
The BOT is still concerned about the baht’s strength, although there is no evidence of speculation in the currency, he said.
The baht weakened after the rate cut and the BOT’s further relaxations on rules to encourage capital outflows.
But it has still risen 7.6% against the dollar so far this year, sustained by Thailand’s hefty current account surplus.
The BOT will also cut its forecasts for headline inflation for this year and next, currently 0.8% and 1.0%, respectively, said Mathee, though he added Thailand was not expected to face deflation.
Headline inflation was just 0.11% in October, the lowest in 28 months and far below the BOT’s 1-4% target range, which is being reviewed.