Bank of Thailand surprises economists with their rate cut.
By: James Robert Haft.
On Wednesday, the Thai Central Bank surprised nearly everyone when it cut its benchmark interest rate by a quarter percentage point to 1.5 percent. In a Bloomberg survey, only two of the 29 economists consulted predicted this with the remainder saying they felt the Bank of Thailand would still hold off for awhile.
The Reserve Bank of India also announced a reduction in its interest rate to 5.5 percent by deducting 25 basis points. This is in addition to three previous cuts totalling 75 basis points. All together, this brings India’s benchmark to its lowest level since 2010.
The Reserve Bank of New Zealand (RBNZ) also shocked the financial markets on Wednesday when it cut interest rates by a half percentage point, slashing the official cash rate to a record low 1 percent.
Then, on Thursday, as expected, Bangko Sentral ng Pilipinas, the Central Bank of the Philippines, cut its lending rate by 50 basis points to 4.25 percent. Economists had expected just a 25 basis points cut.
All four countries have enacted these measures to help stimulate their sluggish economies and inflation rates and shore up protection as the US-China trade war appears to be getting nastier.
As China has let the renminbi tumble to its weakest value in more than a decade, President Trump has called the country a currency manipulator as he sees this action aimed at reducing the costs of Chinese goods to maintain their competitiveness in the US markets. China, on the other hand, says they have taken no action and just let market conditions set the value.
In fact, the remnimbi, or yuan, is now trading at a new low of 4.36 baht, having fallen from a rate of around 5 baht to 1 yuan while the baht has gained in value by nearly 8 percent against the US dollar this year, now trading at 30.75 baht to the US dollar. This can actually be a detriment to Thai exports. Meanwhile, the country continues to suffer from drought.
Prapas Tonpibulsak, chief investment officer at Talis Asset Management Co. in Bangkok, told the Bangkok Post, “Sluggish exports and domestic consumption will make it very tough for the Thai economy this year.” He then went on to say, “We expect more cuts by the central bank through 2020 because it must keep easing monetary policy to make it more effective.”
Following the cut in interest rates by the Thai Central Bank, the Stock Exchange of Thailand reacted favourably with the SET index rising by 0.7 percent, which was the biggest increase in two weeks.