BANGKOK • The Bank of Thailand (BoT) held its benchmark interest rate at an all-time low to support an economy it now sees contracting more than 8% this year, the worst on record.

The central bank kept its policy rate at 0.5% yesterday in a unanimous decision, in line with the forecasts of all but four of the 26 economists in a Bloomberg survey.

Policymakers revised down their growth forecast sharply, predicting an 8.1% contraction for this year, compared to a previous projection of a 5.3% decline. The Covid-19 pandemic has devastated two of the economy’s main growth drivers, tourism and trade, with a slow recovery seen.

With interest rates close to zero, the central bank is slowly running out of conventional policy space to support the economy. Officials have said they are studying unconventional steps, such as asset purchases and some form of yield curve control.

“While the decision to hold rates unchanged came as no surprise, the sharp downward revisions to growth and inflation forecasts highlight the extent of pressure on the economy,” said Mitul Kotecha, a senior emerging markets strategist at TD Securities in Singapore.

Some of the additional forecasts outlined by the central bank yesterday:

• GDP is seen rebounding to 5% next year, higher than the 3% forecast in March.
• Consumer prices will probably contract 1.7% this year compared to a previous projection of -1%; core inflation is seen at 0%.
• Exports will probably plunge 10.3% this year versus a previous forecast of -8.8%.
  
• Tourist arrivals in 2020 will probably reach eight million, down from an earlier projection of 15 million.

“BoT’s new forecasts signal slower economic recovery, leaving room for further rate cuts,” said Tim Leelahaphan, an economist at Standard Chartered plc in Bangkok. “We forecast a 25 basis point cut in the third quarter.”

The monetary policy committee is “concerned about the strengthening baht which affects the economic recovery”, Titanun Mallikamas, an assistant governor, told reporters in Bangkok. “They see the need to monitor the baht closely and assess the need for additional measures if needed.”

TD Securities’ Kotecha said the central bank will likely deliver more currency measures in the weeks ahead.

“However, it is notable that the baht has so far ignored such measures and it will be a challenge to prevent further appreciation,” he said. — Bloomberg