Two members of Thailand’s monetary policy committee who pushed unsuccessfully for a rate cut earlier this month argued preemptive action was needed because of the risks of an economic slowdown in the period ahead, minutes of the meeting showed.
The biggest Covid-19 outbreak to date, which prompted stricter containments measures to areas accounting for about 80% of gross domestic product, has hit economic activity and the still struggling tourism sector.
On Aug 4, the committee voted 4-2 to keep the Bank of Thailand’s (BoT) one-day repurchase rate at a record low of 0.50%, with two dissenters wanting a quarter point cut. The BoT also cut its 2021 GDP growth outlook to 0.7% from 1.8%.
It was the first split decision since a rate cut in May 2020, raising some expectations of a rate cut at the BoT’s next meeting on Sept 29.
Members agreed that monetary policy remained accommodative and financial measures would be more effective and targeted than cutting the policy rate which was a “blunt instrument”, the minutes said.
But the two dissenters felt financial and fiscal measures might have some limitations and remained inadequate and that monetary policy would take some time before the effects reached the economy, the minutes said.
“They thus voted to cut the policy rate at this meeting, although the policy rate was deemed less targeted and effective than other financial and fiscal measures, to mitigate heightening risks in the period ahead,” the minutes said.
The baht recently depreciated and thus did not hinder the economic recovery, according to the minutes, with the currency dropping 9.6% against the dollar so far this year, making it Asia’s worst performing currency.