Thai central bank flags Omicron risk as it keeps rates on hold

THAILAND - BANGKOK. Thailand's central bank left its key interest rate steady at a record low, maintaining support for the tourism-reliant economy, as it faces fresh risks from the spread of the Omicron coronavirus variant.

The Bank of Thailand's monetary policy committee unanimously voted to hold the one-day repurchase rate at 0.50%, where it has been since May 2020 following three cuts earlier that year. The rate decision was expected by all 22 economists polled by Reuters.

While the BOT slightly upgraded its 2021 growth forecast, it cut next year's outlook, saying it expected the Omicron variant to affect the economy in early 2022. It slightly raised its inflation forecasts for this year and next, but they were still well within the central bank's 1%-3% target.

"The spread of the Omicron variant would be a key risk to the economic outlook and therefore warranted close monitoring," the BOT said in a statement after its policy meeting.

"The impact could be more severe and prolonged than expected due to downside risks such as the severity of the outbreak and the strictness of corresponding containment measures."

The comments come after the government earlier reinstated its mandatory COVID-19 quarantine for foreign visitors and scrapped a quarantine waiver due to Omicron, having only reopened to foreign tourists last month..

Those measures were reflected in the central bank's forecasts, with the BOT cutting its expectations of foreign tourists next year to 5.6 million from 6 million previously. It expected 280,000 tourists to have come to Thailand in 2021.

While the BOT raised its 2021 growth forecast to 0.9% from 0.7%, it cut its 2022 growth estimate to 3.4% from 3.9% previously.

"The first quarter of next year is likely to be a lot weaker than we had previously envisaged," said Gareth Leather, senior Asia economist at Capital Economics, adding the changes in the quarantine rules represent a "major blow to the tourism sector".

"Omicron also increases the risk that domestic restrictions will need to be reintroduced ... against such a backdrop the central bank will want to keep interest rates low."

Kobsidthi Silpachai, head of capital markets research of Kasikornbank, expects no rate change through 2022. "Without a clear sign of when tourism will truly recover, we view that the MPC would opt to keep policy accommodative."

Last month, the finance minister said monetary policy must remain accommodative to underpin fiscal measures.

The BOT expects headline inflation of 1.2% this year and 1.7% in 2022. Inflation was at 2.71% in November.

"The Committee assessed that headline inflation would be subject to upside risks given higher global inflation and thus warranted close monitoring," the BOT said in a statement.

Assistant Governor Piti Disyatat told a news conference that inflationary pressure was low and the BOT would focus on supporting growth. He said a weak baht was good for export margins.

The BOT upgraded its forecast for export growth this year to 18% from 16.5% previously, having benefitted from the global recovery.

But for 2022, exports were seen growing 3.5%, versus a previous forecast of 3.7% previously, as global growth slows.