UPDATE 2-Thai c.bank keeps policy rate at record low, warns of COVID-19 risks

Australian dollars in Sydney, Friday, Jan. 15, 2016. (AAP Image/Joel Carrett) NO ARCHIVING

* Central bank holds key rate at record low 0.50%, as expected

* Says economy to expand sharply less than forecast this year

* Says monetary policy to remain accommodative

* Says fiscal policy, exports to support economy (Adds GDP scenarios, analyst comment)

BANGKOK, May 5 (Reuters) – Thailand’s central bank left its key interest rate unchanged at a record low of 0.50% on Wednesday, preserving its limited ammunition to support Southeast Asia’s second-largest economy struggling with a third wave of coronavirus infections.

The latest outbreak has slowed domestic activity for the tourism-reliant economy at a time when it was preparing to reopen to travellers, but increased exports, another key growth driver, have lent some support.

The Bank of Thailand’s (BOT) monetary policy committee voted unanimously to keep the one-day repurchase rate unchanged for the eighth meeting in a row.

All 14 economists in a Reuters poll had expected the BOT to remain on hold after three rate reductions in the first half of 2020 to ease the impact of the pandemic on the economy that suffered its deepest slump in over two decades.

“The Thai economy would expand at a much lower rate due to the third wave of the COVID-19 outbreak,” the central bank said in a statement. The BOT’s current GDP growth forecast is 3.0% this year.

The outbreak has affected domestic spending and prospects for a recovery in foreign tourism, the BOT said, adding that the country’s vaccine rollout would be key.

The economy could grow 2% this year, with foreign tourists expected at 1.2 million if Thailand can distribute 100 million doses of vaccine this year, the BOT said.

But if less than 64.6 million doses are distributed this year, the economy may only grow 1%, it said. Thailand has a population of more than 66 million people.

However, the assumptions have yet to take into account any additional fiscal measures, MPC Secretary Titanun Mallikamas told a news briefing.

Monetary policy will remain accommodative to support economic activity, the BOT said, reiterating that the limited policy room should be preserved to be used at the most effective time.

“The third wave prompted continued solidarity within the Monetary Policy Committee to keep monetary policy accommodative to buy more time for the Thai economy until the true economic silver bullet becomes available,” said Kobsidthi Silpachai, head of capital markets research of Kasikornbank.

The third COVID-19 wave has accounted for more than half of total cases since the start of the pandemic. The outbreak came as Thailand prepared to reopen more broadly to foreign tourists and global vaccine rollouts paved the way for air travel to pick up.

In a worst case scenario, the central bank said visitors may only total 800,000 this year, compared with nearly 40 million foreign arrivals in 2019.

The BOT is due to give new economic forecasts at its next rate meeting on June 23.

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