Bank of Thailand to keep rates steady amid US Fed caution

Analysts predict the Bank of Thailand will maintain its policy rate during its meeting tomorrow, citing a recovering domestic economy and potential changes in US Federal Reserve interest rate cuts if inflation revives.

Chaiyot Jiwangkul, head of research at Krungsri Securities (KSS), attributed the economic rebound to increasing tourist arrivals, government budget disbursements, and a 10,000-baht (US$300) cash handout to vulnerable groups.

Recent US inflation data has intensified discussions on whether the Federal Reserve will opt for a smaller rate cut next month or pause after a significant 50 basis points reduction in September, Chaiyot said. According to the US Bureau of Labor Statistics, the consumer price index rose by 2.4% year-on-year in September, surpassing the forecast of 2.3%.

“We believe the Bank of Thailand’s Monetary Policy Committee [MPC] will keep the rates unchanged at its meeting tomorrow, preferring to first see the direction of US interest rates.”

Rakpong Chaisuparakul, Senior Vice-President of KGI Securities (Thailand), concurred, stating that rates would likely be maintained at the upcoming MPC meeting.

“As Thai GDP growth momentum looks solid in the coming quarters and the baht has weakened in recent weeks, we believe the MPC will stay put and maintain the policy rate at 2.50%. Our baseline view is the MPC will start cutting interest rates in early 2025.”

Policy rate

KSS anticipates the MPC will begin reducing interest rates in the first half of 2025, aligning with expected aggressive rate cuts by the Fed and other central banks, Chaiyot added.

Kasikorn Securities and Kasikorn Research Centre (K-Research) also forecast that the MPC will unanimously vote to maintain the policy rate at 2.50% at this week’s meeting. They expect the MPC to adopt a more accommodative stance in its monetary policy, signalling future interest rate cuts. K-Research suggests the MPC might start reducing rates as early as December 2024.

“A supporting factor for a trim in December is the Thai economic recovery is fragile and faces high risks,” the think tank noted.

Despite expected economic growth in the second half of the year, driven by rebounding exports, tourism, government spending, and stimulus measures, ongoing floods have severely impacted the agricultural and tourism sectors. Consumer purchasing power has also been constrained due to the global economic slowdown, according to K-Research.

The think tank projects low inflationary pressure, with headline inflation in the fourth quarter returning to the lower range of the central bank’s target of 1 to 3%. Headline inflation is expected to average 0.5% this year, reported Bangkok Post.

The monetary policy direction of major central banks, including the Fed, remains accommodative, with further US rate cuts anticipated at the two remaining meetings this year, K-Research stated.

The MPC meeting this month is set to publish economic and inflation forecasts, with K-Research expecting the central bank to maintain its current projections for this year. The central bank forecasts the economy to grow by 2.6% in 2024, with a headline inflation rate of 0.6%. The 2025 GDP growth estimate of 3.0% could be revised downwards based on increased risk factors, the regulator noted.