The Bank of Thailand is anticipated to maintain its policy rate at a decade-high of 2.5% during its meeting on Wednesday. However, analysts indicate a growing chance of a rate cut this year due to increasing challenges facing the Thai economy.
The Kasikorn Research Center (K-Research), the think tank of Kasikornbank (KBank), shares a consensus with equity analysts that the central bank’s Monetary Policy Committee (MPC) will keep the rate steady at 2.5% this week.
As GDP growth averaged 1.9% in the first half of 2024, the economy is expected to align with K-Research’s projection of a total growth rate of 2.6% for the year.
KBank expects the MPC to retain the policy rate for the remainder of 2024, although Kanjana Chockpisansin, head of research for banking and the financial sector at K-Research, noted a potential for monetary policy easing “if warranted by economic conditions.”
“The outlook remains steady as the economy continues to grow slowly and erratically,” Ms. Kanjana explained to the Bangkok Post. “If the risks of economic contraction increase, it is possible for the MPC to lower the rate once this year, following a cut from the US Federal Reserve.”
Maybank also anticipates the policy rate to stay unchanged this week amidst persistently declining real interest rates. Inflation was recorded at 0.8% last month, up from -1.1% in January.
The central bank is likely to reduce the rate by 0.25 percentage points in the first half of 2025 “when global central bank easing gains momentum,” according to a research note from the Kuala Lumpur-based banking group.
Maybank highlights that with Pheu Thai leader Paetongtarn Shinawatra succeeding Srettha Thavisin as prime minister and forming a new cabinet, policy continuity is expected in the short term. The new prime minister recently stated the need for further study regarding the flagship digital wallet initiative.
“We predict the project may be reevaluated and potentially canceled, with funds originally earmarked for the digital wallet possibly allocated to other spending priorities,” the note mentioned.
The new government is also facing pressure to support local industries in light of increased competition from China, as stated by Maybank.
“In the long run, investor sentiment is likely to turn positive only when the new premier and cabinet show a commitment to implementing strategic and structural economic reforms,” the bank added.
BofA Securities noted that despite initial signs of recovery in demand and supply data, the economy is still faced with downside risks, particularly from weak consumption of durable goods, while slow loan growth is expected to exert ongoing pressure on construction and real estate sectors.
A significant segment of the decline in industrial production is attributed to structural issues, which are not likely to improve in the near future, while regional export growth has begun to decelerate, according to the brokerage.
“Although we foresee GDP growth in the second half of the year to be stronger than in the first half due to a low base effect, the risks appear to lean towards the downside,” BofA concluded in its research note.
