Bank of Thailand likely to cut policy rate, predicts CIMB Thai Bank

The Bank of Thailand (BoT) is predicted to lower its policy rate tomorrow, providing a short-term stimulus to the nation’s economy, which has been hampered by budget disbursement delays. Amonthep Chawla, lead economist at CIMB Thai Bank (CIMBT), believes the central bank’s Monetary Policy Committee (MPC) will favour a reduction in the policy rate at the upcoming meeting, with a predicted 4-3 vote.

The anticipated shift is in contrast to the last committee meeting in February, where the MPC voted 5-2 to keep the policy rate steady. At that time, two members advocated for a rate reduction, citing a significant decrease in the neutral interest rate due to falling potential economic growth rates amidst heightened structural obstacles.

According to Chawla, the delicate equilibrium between an appropriate policy rate and prospective economic growth is likely the main motivation behind the expected rate reduction. The fiscal 2024 budget’s delayed disbursement has dampened economic activity and eroded consumer purchasing power. Thus, the anticipated rate cut could aid a short-term economic recovery.

CIMBT predicts the MPC will reduce the policy rate twice in succession, in April and June, each by 0.25 percentage points, bringing the rate down to 2% by the end of the year. However, the bank cautions that the lower policy rate may not significantly boost Thailand’s economic growth this year due to persistent structural issues.

CIMBT has revised its Thai GDP growth forecast for this year from 3.1% to 2.7%. While the bank had previously evaluated the economy’s growth potential as exceeding 3%, it now considers it to have fallen below this level. The World Bank also forecasted a decline in Thailand’s potential GDP growth post-pandemic, estimating an average of 2.7% per year between 2023 and 2030.

Chawla suggests that Thailand requires structural reform, calling for a collaboration between monetary and fiscal policies to bolster potential GDP growth over the long term. SCB EIC, a research arm of Siam Commercial Bank, also anticipates the MPC will begin to cut the policy rate by 0.25 percentage points tomorrow.

Debt burden

Meanwhile, Chief Economist at SCB EIC, Somprawin Manprasert, posits that a rate cut will not only allow the MPC to adjust its monetary policy in line with the economy’s structural changes but will also alleviate the debt burden, especially for vulnerable companies and households grappling with high-interest rates.

However, Kasikorn Research Center (K-Research) expects the committee to keep the rate steady at Wednesday’s meeting, foreseeing the commencement of the policy rate cuts in June, followed by further reductions of 0.25 percentage points. K-Research believes that the MPC will likely cut rates after the US Federal Reserve to avoid potential capital outflows and prevent the baht from depreciating against the dollar.