The Bank of Thailand voted to maintain its benchmark interest rate after slashing it for a remarkable second time this year due to ongoing economic contraction caused by the soaring baht, according to a report released Wednesday.
“In deliberating their policy decision, the Committee assessed that the Thai economy would expand at a lower rate than the previous forecast and below its potential due to a decline in exports which affected employment and domestic demand,” stated the Bank of Thailand in its monetary policy decision report.
The Thai central bank also lowered its GDP growth forecast to 2.5 percent, a considerable drop from last year’s 4.1 percent growth rate.
The second largest ASEAN economy’s currency has been among the strongest in the world over the past year. The baht increased in value more than 5 percent against the US dollar in the first half of this year. In fact, the baht appreciated more than any other currency in Asia.
Thailand’s economy trended toward a sluggish start from the start of the year due to a soaring baht and the ramifications of the US China trade war.
The central bank cut interest rates for the second time this year to 1.25 percent last month, a rate unseen since the global financial crisis in 2009.
Important economic sector from tourism to real estate has been struck hard by the baht’s rise. The tourism sector is a major component of the Thai economy, accounting for up to a fifth of the country’s GDP.
Former Thai Airways chairman Ekniti Nitithanprapas said the main reason for the major slump in the airlines’ revenue came from tourists not coming to Thailand due to rising cost of the Thai baht. The national flagship-carrier Thai Airways chairman resigned last week after the company published its 2Q result showing a $220 million net loss.
In the real estate sector, Thai and foreign investors are ignoring newly launched condominium projects as over 80 percent of the units offered for sale in the first half of this year remain on the market, according to a Knight Frank report.
The report calculated the majority of the 27,870 new units up for sale during the first half of this year remained unsold. Of the new units put up for sale this year, only 5,257 were sold–a rate of only 19 percent.
“The sales rate for new condominiums launched in Bangkok during the first half of 2019 fell to historic lows,” stated the Knight Frank report.
Foreign investors also looked elsewhere or sat on their wallets as the baht strengthened throughout 2019, becoming one of the strongest currencies in the world.
“The appreciation of the baht against the US dollar and the yuan had also impacted demand for residential properties from foreign investors, resulting in a drop in bookings during the second quarter of this year,” read the Knight Frank report. “The property market is going through a hard period with both domestic and overseas demand dropping as a result of the LTV coming into effect and the baht appreciation.”