Thai stocks turned positive on Wednesday after the Bank of Thailand (BoT) held interest rates as expected and predicted second-quarter output would be better than forecast, while warning it was ready to quell gains for the baht.
The bank, which already has rates at a record low of 0.5%, said exports were gradually recovering and expected inflation back on target next year, while saying it does not want the baht to rise “too fast” and has the tools to act.
Thailand’s economy relies heavily on its exports, which have already fallen sharply in the pandemic, and appreciation of the currency now would make its products more expensive and less competitive globally.
The BoT also kept the door open for further easing with its range of monetary tools, if necessary, which sparked talks of the central bank turning to unconventional measures to manage the economy.
“This may sustain the noise about quantitative easing (QE) and yield-curve control, however, I think it will remain a noise rather than becoming a reality in the near term,” ING economist Prakash Sakpal said.
“The negative interest rate is just a far cry for an emerging economy and it’s unlikely to serve the purpose of boosting the demand. Absent any more easing via policy rates, or QE, we are in for a prolonged policy stalemate,” Sakpal added.
Bangkok shares climbed 0.5% in response, while the baht held its gains against the dollar.
Currencies and stocks across Asia were all higher, with the ringgit, the won and the Taiwan dollar all up.
Indonesian stocks ticked lower after data showed the economy shrank by a sharper-than-expected 5.32% in the second quarter, the first time since 1999. The index later recovered to gain 1%, while the rupiah barely budged.
The Reserve Bank of India meets on Thursday, with consensus split between a cut or hold to interest rates. Soaring coronavirus cases, a plunge in manufacturing output and lower chances of further fiscal stimulus due to deteriorating public finances all build a case for further monetary accommodation, analysts at ING said. Analysts at DBS Research said they did not anticipate a cut now, but predicted 50 basis point reduction in the second half on mounting downside risks to growth. Perhaps as important as the decision will be the RBI’s guidance on a moratorium on loan repayments, which is set to expire by August-end, and what that means for Indian banks struggling with bad debts, they said.