On Wednesday, the Bank of Thailand’s Monetary Policy Committee (MPC) decided to maintain the policy rate at 2.5%, aligning with the ongoing recovery of the local economy.
The MPC voted 6-1 to keep the rate unchanged, with one member advocating for a 0.25 percentage point reduction, according to Piti Disyatat, the MPC secretary.
Mr. Piti indicated that the Thai economy is anticipated to grow as expected, buoyed by tourism and domestic demand, along with a gradual recovery in exports. Inflation is projected to return to the target range by the end of 2024.
“The inflation rate is forecasted to remain within the central bank’s target range of 1-3% this year, potentially hitting the lower end next year,” he stated.
On Monday, the National Economic and Social Development Council reported a GDP growth of 2.3% for the second quarter of 2024, which is in line with the MPC’s projections.
This growth was primarily fueled by tourism and domestic demand, although Mr. Piti noted that private consumption is expected to slow after a period of robust growth.
The MPC forecasts continued economic growth in the second half of the year, with an estimated growth rate of around 3% in the third quarter and 4% in the fourth quarter.
However, growth momentum is expected to decelerate in the latter half, with a projected quarter-on-quarter growth of approximately 0.7%, down from 1.2% in the first half, due to certain downside risks.
He remarked that these risks include lower-than-expected domestic investment from both public and private sectors, a slowdown in private consumption growth, and declining asset quality in the banking sector.
“Given these challenges, the MPC will keep a close watch on economic conditions and comprehensive data to inform any future adjustments to the policy rate,” Mr. Piti said.
Although non-performing loans in the banking sector are expected to increase, they are anticipated to remain manageable. This rise in bad debt is partly linked to the expiration of financial assistance measures introduced during the pandemic.
Consequently, banks will need to allocate more resources to managing bad debts amidst minimal new loan growth.
He noted a decline in loans in the automotive and electronics sectors due to structural challenges.
Similarly, loans to small and medium-sized enterprises have decreased due to rising credit risks, while growth in household loans has slowed because of deteriorating credit quality.
This slowdown is partially attributed to the worsening debt serviceability of vulnerable households, which has resulted from a sluggish recovery in income.
The MPC considers it essential to monitor how this decline in credit quality impacts borrowing costs and overall credit growth, as it could disrupt economic activity, Mr. Piti explained.
He mentioned that if the new government pursues a cash handout scheme aimed at vulnerable groups, the budget may be lower than that of the digital wallet plan, potentially reducing the economic multiplier effect.
The committee will keep an eye on any government stimulus measures, according to Mr. Piti.
Separately, caretaker Finance Minister Pichai Chunhavajira stated on Wednesday that adjustments to the policy rate fall under the authority of the MPC.
He emphasized that interest rates are merely one tool for managing the economy, which is currently sluggish.
“Interest rates are related to inflation, which is unusual because, despite low inflation in Thailand, people still perceive that the cost of goods is rising,” said Mr. Pichai.
“It is up to the relevant parties to manage this situation and consider it carefully.”
