BANGKOK -- Thailand's central bank decided on Wednesday to ease monetary policy for the third time this year as it tries to halt the country's economic slide.
The Bank of Thailand cut its one-day repurchase rate 0.25 percentage point to a historical low of 0.5% at a monetary policy committee meeting the same day. 4 out of seven committee members voted for the cut, while three insisted to keep the rate unchanged.
The move was in line with market expectations. Sixteen of 18 economists predicted the rate cut; two expected the bank to stand pat, according to a Reuters poll.
The easing comes as Southeast Asia's second-largest economy deals with the impact of the novel coronavirus pandemic. The central bank had already cut the policy rate twice this year. The reduction first came at a regular meeting on Feb. 5, the second at an unscheduled meeting on March 20. The Bank of Thailand lowered the rate in both instances to ward off the effects of the pandemic by easing the burden on borrowers and to provide liquidity to financial markets.
But the economy continues to shrink. The governmental economic planning agency, the National Economic and Social Development Council, expects this year to be Thailand's worst economic performance since the Asian financial crisis of the late 1990s. It forecasts the economy will contract 5% to 6%. In 1998, economic output fell 7.6%.
The agency said Monday that the Thai economy shrank by 1.8% on the year in January to March, its fastest decline since the fourth quarter of 2011, when Thailand was hit by massive flooding. A 5.5% fall in private investment was the main driver of the contraction.
The Business Confidence Index of Thailand, published by the central bank, in April fell to its lowest level since the index was first published in 1999. In tandem with the government's economic stimulus efforts, the bank has allocated 500 billion baht ($15.7 billion) for soft loans to small and mid-size businesses and 400 billion baht to add liquidity to the corporate bond market and keep funds flowing to large companies. "Three members voted to maintain the policy rate at this meeting, focusing on expediting the effectiveness of the announced financial and credit measures," the Bank of Thailand said in its policy statement.
The bank hopes the third rate cut will spark a rebound in slumping business confidence, which has halted private investment and sparked fears of lost jobs and income among citizens, causing them to tighten their purse strings.
The Thai baht has strengthened to 31.8 baht against the U.S. dollar from 33.15 baht in early April. Investors, who had gone taken profits on the currency's rise or reduced baht-denominated assets, are slowly returning to the market. The rate cut on Wednesday caused the Thai currency to fall to 32.1 baht per dollar, but it was quickly bought back and rose to 31.8 baht.
A strong baht can adversely affect foreign direct investment as well as Thai manufacturers' export competitiveness. "Developments in the financial markets and the foreign exchange markets warranted close monitoring," the central bank said.
The string of rate cuts this year has limited the bank's room for further easing through its conventional monetary policy, which uses short-term interest rates as the favored policy instrument. However, the central bank signaled that it may resort to unconventional measures such as the quantitative easing implemented in developed countries.
"The committee would stand ready to use additional appropriate monetary policy tools, if necessary," the bank said in its statement.