The Bank of Thailand lowered its policy rate by 25 basis points to 0.50 percent, as was expected. The decision was not unanimous, with three of the seven members voting for a hold. The central bank’s assessment of growth was negative, as expected. Nevertheless, unlike the government which expects the GDP to contract 5 percent to 6 percent in 2020, the central bank refrained from providing an estimate.
The 1.8 percent year-on-year fall in GDP growth in the first quarter was milder than expected only because of a large involuntary build-up in inventories. Destocking in the quarters ahead will conversely have a contractionary and potentially disinflationary effect, noted ANZ in a research report.
A much weaker growth is expected in the second quarter as lockdown measures have been extended both domestically and abroad. A sharp fall in the April PMI and consumer and business confidence at all-time lows are indeed, telling of the stress on growth. Also, inflation is likely to fall this year, on average, said ANZ.
“Given the interesting minority decision, we expect a greater reliance on unconventional policy going forward to support the fiscal stimulus announced so far”, added ANZ.