Thailand economy cuts interest rate to 1.5% amidst economic slowdown

Thai GDP expands to 3.3% due to an economic slowdown

Thailand economy forecasts its Thai GDP to grow by 3.3% as the local economy and private investment underperform, according to Citi Thailand. 

In fact, Thailand economy saw its Thai GDP in Q1 expand by 2.8% from last year – much lower than the original forecast as a result of declining exports and public investment. This was the slowest pace that Thai GDP has grown in over four years in Q1. 

On top of the slowing economy, sectors in Thailand economy are also declining. While exports are expected to grow by less than 3%, the tourism sector is expected to expand by less than 5%. 

The public sector is also seeing growth drivers slowing down. As such, according to economist Nalin Chatchotitham, speeding up ongoing infrastructure projects to complete by the end of this year may be necessary to resuscitate Thailand’s economic growth.

Bank of Thailand cuts benchmark interest rate from 1.75% to 1.5%

Due to the dismal economic outlook (from US-China trade war and Thailand’s economic slowdown), the Bank of Thailand (BoT) had decreased its benchmark interest rate by 0.25% to 1.5%. This is the first time in four years the central bank had done so, which they did to allow more room to ease the monetary policy. 

By doing this, it aims to improve Thailand economy via its exports and tourism, which have been negatively impacted by the Thai baht’s appreciation against the US dollar (increased by 8%). 

According to Sunthorn Thongthip, a strategist at Kasikornbank Plc, this benchmark interest rate cut will benefit sectors like the infrastructure funds, property market, utilities and smaller banks. Conversely, the cut will negatively impact big banks and have minimal effect on Thailand’s exports outlook.

Thailand economy may need to further cut interest rate to control the surging baht

Despite the interest rate cut by 0.25%, this had unsuccessfully reigned in the rising Thai baht. As such, Prapas Tonpibulsak, chief investment officer at Talis Asset Management Co, expects the BoT to make further cuts until 2020.

While the BoT didn’t mention the specific reason for the cut, economists suspect this move was influenced by the baht’s strength and its impact on Thailand economy.

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