Thai central bank may cut rates if digital wallet delayed

The Bank of Thailand might be compelled to reduce the policy rate earlier than anticipated if the new government opts to postpone the digital wallet policy slated for the fourth quarter. Analysts warn this delay could significantly impact the Thai economy.

Despite the central bank’s Monetary Policy Committee (MPC) maintaining the rate at 2.5% last week, BofA Securities highlighted that the quarter-on-quarter growth of the Thai economy is expected to weaken in the second half of the year.

BofA Securities pointed out that private consumption is likely to decelerate due to a lack of income recovery among manufacturing labourers and the self-employed. The MPC’s statement also cited increased risks to growth, particularly concerning private investment and consumption. This research note was co-authored by emerging Asia economist Pipat Luengnaruemitchai.

Additionally, the MPC expressed heightened concerns regarding slowing loan growth and worsening loan quality, indicating they would closely monitor these issues’ impact on economic activities. The committee’s focus on financial stability appears to be leaning towards an easing bias, the report stated.

“Given the change in tone of the MPC and a potentially smaller fiscal stimulus, we have changed our expectation for a rate cut from mid-2025 to December 2024.

“If the incoming economic and asset quality data prove to be worse than expected, we think a cut could come even sooner. We expect economic momentum to remain weak into 2025, which would warrant further cuts until the policy rate reaches the terminal rate of 1.75% by the second quarter of 2025.”

Rate cut

CGS International Securities (CGSI) suggested that even if the 10,000-baht digital handout is postponed, the Pheu Thai-led administration would introduce additional stimulus measures to boost domestic purchasing power, which would benefit the retail sector.

The brokerage also noted that an increase in tourist arrivals is expected to drive spending in tourism destinations.

Economists at CGSI indicated that if the digital handout is delayed, other stimulus projects implemented throughout the year should help accelerate interest rate reductions.

The economists advised taking an overweight position on retail stocks, given the likelihood of earlier-than-expected rate cuts.

However, there is a downside risk from weaker-than-expected domestic consumption, which could negatively affect same-store sales growth. Additionally, a hike in the minimum wage would increase selling, general, and administrative expenses. As a result, retail stocks are expected to benefit the most from the anticipated rate cut, reported Bangkok Post.

The home improvement sector might see a slow recovery, as demand for construction materials and related products typically rebounds six months after an interest rate cut, according to CGSI.