(Bloomberg) -- Sign up for the New Economy Daily newsletter, follow us @economics and subscribe to our podcast.

Thailand’s central bank held its key interest rate unchanged and cut its economic forecast a day after lockdown-like measures were extended to more of the country, with two dissenting members calling to cut rates further.

The Bank of Thailand’s rate setting committee voted four to two to hold the one-day repurchase rate at a record-low 0.5% for a 10th straight meeting Wednesday, as all 20 economists in a Bloomberg survey expected. The two dissenters called for a 25-basis point rate cut, the committee’s first split vote since May 2020.

The central bank also cut its 2021 gross domestic product forecast to 0.7% growth, less than two months after lowering it to 1.8%. The Finance Ministry last week revised its own forecast to 1.3% growth, from the 2.3% it expected in April.

“This round of the pandemic will affect the economy both this year and next year. The impact is greater than what we forecast, and the downside risk remains significant,” Assistant Governor Titanun Mallikamas said in a briefing via Facebook Live. “The key mission for us is try to control the outbreak and speed up vaccinations to revive confidence and boost economic activity.”

The decision comes after the government on Tuesday expanded quasi-lockdown measures to additional regions of the country, now covering about 40% of the population. The most stringent restrictions, which have been in place in Bangkok and some provinces since June 20, were extended to the end of August as the nation grapples with a surge in Covid cases fueled by the delta variant.

The baht was down 0.2% at 33.097 to the dollar at 3:49 p.m. local time, near its lowest level since April 2020. It’s down 9.5% against the dollar so far this year, the worst performer among Asian currencies tracked by Bloomberg. The benchmark SET Index was up 0.3% in its afternoon session.

What Bloomberg Economics Says...

The Bank of Thailand is clearly getting set for its next rate cut -- as we expected. It made another sharp reduction to its already-soft growth outlook. Though it kept rates on hold again on Wednesday, the decision was no longer unanimous. Two policy makers dissented, presumably in favor of a rate cut. With the central bank saying risks to its new growth forecast are still “high,” we think it is a matter of time before it cuts its policy rate again -- most likely before year-end.

-- Tamara Mast Henderson, Asean economist

To read the full note, click here

Some economists are flagging the possibility that Thailand’s economy will shrink for a second straight year, something the country hasn’t experienced since the Asian Financial Crisis more than two decades ago. A panel of private-sector banking and industry leaders predicted Wednesday that output could contract as much as 1.5% this year.

Titanun said fiscal measures were needed to offset the blow from the latest virus wave, with policies targeted to assist the most fragile groups in Thai society.

“Most members viewed that financial measures would be more effective than a further reduction in the policy rate, which was already low,” he said, referring to Monetary Policy Committee members. “Nevertheless, two members voted to cut the policy rate to support other measures in shoring up the economy and mitigate heightened risks in the period ahead.”

Covid Records

Thailand on Wednesday reported 20,200 new Covid-19 infections and 188 deaths, the highest daily figures for both. Total cases rose to 672,385, 96% of them since the latest wave began in April, official data show. The Health Ministry expects the outbreak to begin easing by October.

Thailand has administered about 17.5 million vaccine doses, enough to cover less than 13% of the population, according to the Bloomberg Covid-19 Vaccine Tracker.

The decision to keep rates unchanged “was not unanimous, and suggests that further rate cuts are a possibility given the weak growth outlook,” said Khoon Goh, head of Asia research at Australia & New Zealand Banking Group in Singapore. “This will put further pressure on the baht, as the country is set to run further current-account deficits now that the opening to international tourists will likely be delayed further.”

Other points from the Bank of Thailand briefing:

  • The bank now expects the economy to grow 3.7% next year, down from the 3.9% they predicted in June
  • The forecast for tourist arrivals was cut again to just 150,000 visitors this year -- assuming the pandemic is controlled by early in the fourth quarter -- and 6 million in 2022, compared to almost 40 million in 2019, before the pandemic
  • If the outbreak lasts until the end of the fourth quarter, the bank expects just 100,000 tourists this year and 2 million next year

(Adds additional central bank quote in ninth paragraph, updates market levels.)

©2021 Bloomberg L.P.