Bank of Thailand forecasted to initiate rate cuts later this year

Leading economists anticipate that the Bank of Thailand will initiate rate cuts in the second half of this year, potentially reducing the policy rate to 2%. This prediction aligns with the current economic status of the country and the assumption of an impending rate cut by the US Federal Reserve in the second quarter.

Amonthep Chawla, the chief economist at CIMB Thai Bank (CIMBT), anticipates two quarter-point rate cuts this year, the first around August and the second in the final quarter. Consequently, the policy rate, presently at 2.5%, is projected to drop to 2% by the end of the year.

This forecast is made in light of the country’s low inflation and economic growth. Currently, the inflation rate remains below the central bank’s target of 1-3%, while Thailand’s GDP growth is approximately 3% below the potential rate.

Under ordinary circumstances, CIMBT predicts a GDP growth of 3.1% in 2024 without the implementation of the digital wallet scheme. However, if the stimulus package is introduced, the country’s economic growth could rise to 3.6%.

Furthermore, Chawla predicts that the Fed will begin rate cuts in May. As a result, the Bank of Thailand may seek to narrow its gap with US interest rates to prevent foreign capital outflows.

The central bank’s policy rate movement would depend on the economic situation rather than political issues. Normally, the Bank of Thailand would take into consideration three core factors which include the inflation rate, economic growth and financial stability in managing monetary policy, Chawla said.

PM concerns

Contrarily, Prime Minister Srettha Thavisin expressed concerns about the Bank of Thailand’s recent interest rate hikes, which have been implemented despite several consecutive months of easing inflation. This trend is particularly concerning for low-income earners and small and medium-sized enterprises.

Since August 2022, the Bank of Thailand has increased its policy rate from 0.5% to the current 2.5%. Meanwhile, headline inflation contracted 0.8% year-on-year for the third consecutive month as of December 2023.

Naris Sathapholdeja, head of analytics, suggests the Bank of Thailand may maintain its policy rate at 2.5% by the end of this year under the base-case scenario. However, he also suggests a possibility of a rate cut in the second half, again due to low inflation and economic growth.

Krungthai Compass, a research unit of Krungthai Bank, estimates that headline inflation will be around 1% this year due to lower energy prices. In December last year, the headline inflation fell by 0.83% year-on-year, while the core inflation rate was at 0.58%. For 2023, headline inflation expanded 1.23%, while core inflation rose 1.27%, reported Bangkok Post.