BANGKOK -- Thailand's central bank on Wednesday cut its policy rate to a record low to cushion the blow of the coronavirus epidemic.
The Bank of Thailand's monetary policy committee lowered its one-day repurchase rate by 0.25 of a percentage point to 1%. The latest cut brought the rate to a historical low. In November 2019, the bank had cut the rate to 1.25%, equaling the level it maintained from April 2009 to July 2010 to stave off the global financial crisis.
The coronavirus outbreak is expected to hit the kingdom hard. Thailand's Finance Ministry lowered its gross domestic product growth outlook for 2020 from 3.3% to 2.8% on Jan. 29, citing the effect of the outbreak on tourism, as well as the trade war and Brexit.
Siam Commercial Bank's Economic Intelligence Center is even more pessimistic, cutting its economic growth forecast for Thailand this year to 2.1% from 2.7%.
Other than the threat of the coronavirus outbreak denting the economy, the central bank attributed the grimmer economic outlook to the delayed national budget disbursement as well as a drought.
"In this situation, there was an urgent need to coordinate monetary policy and fiscal measures," the central bank's policy statement said.
"Monetary accommodation would also support liquidity provision and debt restructuring for businesses and households severely affected from the economic slowdown," the statement read. "Exports of goods would decline in line with trading partner economies and potential impacts of regional supply chain disruptions."
The economy is vulnerable to the coronavirus outbreak because the tourism industry, which makes up a fifth of the country's GDP, relies heavily on China. Chinese tourists account for 28% of all visitors to the kingdom. Chinese arrivals were down nearly 60% during this year's Lunar New Year period. So far, 25 coronavirus cases have been confirmed in Thailand, the second largest number outside China, after Japan.
Inflation remains subdued, with prices rising at a 0.9% annual pace in December. That was below the bank's medium-term target of 1% to 3%.
The central bank in its statement emphasized that it stands "ready to use policy tools as appropriate."
As the markets reacted to the announcement, the Thai baht weakened to 31.26 against U.S. dollar, nearing the seven-month low recorded on Jan 30. But it strengthened back to 30.90 later in the day.
"Investors know that the Thai economy is the most vulnerable in the region to the current epidemic," said Motoko Miyano, deputy general manager at Sumitomo Mitsui Banking Corp.'s Bangkok branch. "The reaction was limited, as some of them likely had already taken a scenario of the rate cut into account."
Commercial banks also reacted. Kasikornbank President Predee Daochai revealed that the bank will reduce its minimum retail rate for individual customers and small and midsize enterprises by 0.25 of a point, to 6.62% from 6.87%, effective Thursday. The bank will not lower interest rates on individual savings, but it will cut rates on corporate savings and deposits by 0.10% to 0.12%, and on fixed deposits by 0.05% to 0.25%.
This may give breathing room to smaller businesses whose finances have been strained as the coronavirus drags on the economy. Prime Minister Prayuth Chan-ocha's cabinet has approved measures for smaller companies, including soft loans and extensions of income tax payments. The central bank and the government are acting together to deal with the immediate economic threat.
Of the 23 economists surveyed in a Reuters poll, nine had predicted the cut, while 14 expected the bank to stand pat.
The Bank of Thailand is not the only central bank to loosen its purse strings to ward off the economic effects of the virus. The People's Bank of China conducted open market operations on Monday, pumping 1.2 trillion yuan ($174 billion) into the financial system.
Responding to media queries, the Monetary Authority of Singapore announced Wednesday that it will maintain its policy stance for the time being. The authority normally reviews its currency policy twice a year. In Oct 2019, it decided to reduce the pace at which the Singapore dollar is allowed to rise. "MAS is monitoring economic developments closely," it said. "The next policy review remains as scheduled in April 2020."