CIMB Thai Bank predicts BoT policy rate cut to 1.5% by 2025

CIMB Thai Bank (CIMBT) predicts a significant reduction in the Bank of Thailand’s policy rate by one percentage point between December and next year, aligning with anticipated cuts in the US policy rate.

Amonthep Chawla, the bank’s chief economist, stated that the Monetary Policy Committee (MPC) is likely to reduce the policy rate by 0.25 percentage points in December, bringing it down to 2.25%. This expectation is based on the inflation rate entering the central bank’s target range of 1-3% in the latter half of the year.

The US Federal Reserve is projected to reduce its policy rate twice this year, in September and December, and an additional three times next year to manage inflation amid economic growth, Amonthep said.

“Given this scenario, the MPC is expected to follow suit by cutting the policy rate three times throughout 2025, at the rate of 0.25 basis points per reduction, resulting in a policy rate of 1.5% by the end of next year.”

These rate cuts are anticipated to lower financial costs, stimulate investment, and support long-term Thai economic growth.

Thailand‘s GDP growth is currently below its potential rate of 3%, which could lead to economic stagnation without the implementation of appropriate stimuli and reforms, Amonthep warned.

CIMBT maintains its forecast for Thai GDP growth in 2024 at 2.3%, following a higher-than-expected 1.5% year-on-year growth in the first quarter. The bank expects GDP growth to improve to 1.8% in the second quarter, reach 2% in the third quarter, climb to 3.9% in the fourth quarter, and stand at 3.2% in 2025, Amonthep said.

“We do not factor in the government’s digital wallet handout scheme in our economic momentum projections. The economy is expected to improve in the second half of this year, driven by tourism, domestic consumption, and investment.”

The bank has revised its forecast for public consumption growth in 2024 from 1.7% to 3.3%, public investment from a 1.9% contraction to 2.3% growth, and private investment growth from 2% to 3.4%.

The tourism sector is expected to play a significant role in driving the economy in 2024 and 2025, with foreign arrivals projected to reach 35.6 million and 39.1 million, respectively.

However, Amonthep highlighted that external factors such as geopolitical tensions, general elections in major economies, and the direction of US interest rates will exert pressure on Thailand’s economy next year, reported Bangkok Post.

Additionally, Thailand’s weaker manufacturing sector could impede long-term economic expansion.