Bank of Thailand likely to cut policy rate in April, predicts SCB EIC

Siam Commercial Bank’s research centre, SCB EIC, anticipates that the Bank of Thailand is likely to initiate a decrease in the policy rate in April due to structural economic issues. The research centre predicts that the Monetary Policy Committee (MPC) will slash the policy rate by 50 basis points in the first half of this year.

The initial rate cut is projected to occur at the MPC gathering on April 10, with an additional 25 basis point reduction at the following meeting on June 12, as noted by the Chief Economist at SCB EIC, Somprawin Manprasert.

By the middle of the year, the research unit envisions a policy rate of 2%, a drop from the current 2.5%, whilst preserving a neutral monetary policy stance. Manufacturing is facing increasing structural issues and Thailand’s long-term neutral rate requires reassessment, according to the SCB EIC while Somprawin contrasted the previous SCB EIC neutral policy rate estimate of 2.5%.

“Factors influencing the Thai economy will play a pivotal role in supporting the central bank’s policy rate cuts. Our assessment shows Thailand’s neutral rate has dipped to 2.1%, aligning with a slower pace of economic growth in the country.”

The expected rate cuts will not only create scope for the MPC to realign its monetary policy stance by the structural shift in the Thai economy but will also alleviate the debt burden, especially for susceptible firms and households grappling with rising exposure due to high-interest rates.

The rate cuts are also expected to strengthen the economic sentiment amidst the subdued government spending this year, Somprawin added. Although these rate cuts would predate those of the US Federal Reserve, which is likely to begin reducing its rate in June, the cuts are not expected to have a significant impact on foreign capital outflows and the foreign exchange rate.

Short-term baht stability

In the short term, the baht is projected to stabilise within a 35-36 range per US dollar, as external factors have already spurred previous baht appreciation. By the end of the year, SCB EIC expects the baht to appreciate to between 33.50 and 34.50 against the US dollar, driven by a weakening dollar following the Fed’s rate cuts and an improved outlook for Thailand’s economy, reported Bangkok Post.

However, SCB EIC has reduced its Thai GDP growth forecast for 2024 to 2.7% from 3%, owing to a persistent contraction in public spending in the first quarter of this year due to the delayed passage of the 2024 budget bill. SCB EIC notes that tourism and private consumption will be the central drivers of Thai economic growth this year.