FOREX Key rate suspended amid record exports
Thailand Economic News: FOREX Key Rate Suspended Amid Record Exports
Bank of Thailand keeps key rate at 0.5% while lowering economic growth forecast to 1.8%
The Monetary Policy Committee (MPC) unanimously voted to keep the key rate at 0.5% for the ninth consecutive meeting. We believe the BOT will leave the rate unchanged for at least a few years. The BOT believes that past financial support programs, such as rehabilitation loans and asset storage, will benefit businesses and households more than a further cut in the policy rate.
BOT has lowered its growth projection for 2021 to 1.8% from 3% in March, in line with our estimate of 1% to 2% since the start of the year. The weaker economic forecast was mainly due to the lack of international visitors and the ongoing third wave of COVID-19. Currently, there are more than 3,000 new confirmed COVID-19 infections per day, and only about 8% of Thais have been vaccinated. The Phuket Sandbox, which will allow vaccinated visitors to travel without quarantine, is expected to attract only around 150,000 visitors – a drop in the ocean compared to the number of tourists in 2019.
Following the new wave of the COVID-19 pandemic, market sentiment deteriorated rapidly. As a result, the UTCC consumer confidence index fell to 44.7 in May 2021 from 46.0 the previous month, the lowest figure since February 1999. On the business side, some companies had to temporarily suspending operations after discovering a COVID-19 breakout among factory workers, dropping business confidence to 43.0 in May from 46.0 a month earlier.
As the outlook for Thailand’s tourism industry remains murky and the COVID-19 situation remains unchecked, THB will remain low. With the Fed’s position tightening, we therefore expect the Thai baht to move into the 32 – 33 range in the coming months.
Due to strong global demand and weak base effect, Thai export growth peaked in 11 years in May
Thai exports in May were up 41.59% from a year ago, the biggest gain in more than 11 years, as global demand strengthened. This reading is higher than a Bloomberg poll forecast of a 33.50% year-over-year increase in May. Exports climbed 45.87% year-on-year after excluding gold, oil-related items and weapons, in line with the rise in the global manufacturing PMI, which topped 50 for eleven consecutive months. At the same time, imports also increased 63.54% year-on-year to reach $ 22.26 billion, resulting in a trade surplus of $ 795.95 million.
Automobiles, equipment and parts continue to be in high demand, contributing more than 11% to May’s export growth. Thai auto exports increased 170.34% in May, thanks to the strong economic recovery of major trading partners such as the United States, Australia, Japan, Vietnam. However, there are still risk factors to consider, such as ongoing semiconductor shortages and the growing number of COVID-19 cases in Thailand, both of which could seriously disrupt the manufacturing process.
Another major driver of Thai exports this month is strong global demand for products related to locking and remote working. (Contribution to growth: electronics: 5.7%, electrical appliances: 5.39%). into services such as restaurants, movies, concerts and sporting events.
Looking ahead, Thai exports are expected to continue growing, but the growth rate is expected to moderate over the next few months as the base effects wear off. Nonetheless, South Korean exports grew only 33.7% yoy in June, after jumping 59.1% yoy the month before. This, combined with rising shipping costs, points to a slowdown in export growth in June and the second half of 2021.