Bank of Thailand cuts policy rate, to 1.5%

The Bank of Thailand’s Monetary Policy Committee has made a surprise decision today to cut the policy interest rate amid pressure to avert an economic slowdown and hedge the heightened trade war between the US and China.

The MPC cut the interest rate by only 25 basis points to 1.5 %. But the cut is significant. Of the seven-member committee, five voted for the cut while two voted to maintain the rate at 1.75%.

The Thai baht has been one of the strongest currencies in the region while the Chinese yuan has been weakening. The baht and Thai government bonds are considered by foreign investors as a safe-haven. The baht ranks 18th among the world’s strongest currencies.

The Thai currency has appreciated against the US dollar by about 5% since early this year while it has gained 8% against the Chinese yuan.

Exporters and even overseas Thai workers have recently expressed worries about the stronger baht. Locally there’s been pressure from the tourism sector saying that the Thai baht is part of the reason there has been a softening in some sectors of the Thai tourism industry. The property market too has seen a small drop in interest from traditional strong buyers like the Chinese.

Most economists had tipped the MPC to maintain the policy rate at today’s meeting.

After the news of a rate cut, the baht immediately weakened to 30.89 baht per US dollar, down from 30.75 before the rate cut, then it rebounded to 30.82 baht at around 3pm. Hard to keep a good currency down!

SOURCE: The Nation