The rapid rise of the baht may lead the Bank of Thailand to reduce interest rates as soon as its meeting in mid-October, according to analysts, who believe that continued inflows could further strengthen the currency.
Kasem Prunratanamala, head of research at CGS International Securities (Thailand), noted that the baht has appreciated nearly 4% against the US dollar year-to-date, outpacing regional counterparts.
At the same time, inflation has decreased sharply since the second quarter of 2023 and is expected to average just 0.8% for the year, falling below the central bank’s target range of 1-3%. This target will be a topic of discussion next week during talks between the central bank and the Ministry of Finance, as mentioned by Minister Pichai Chunhavajira on Tuesday.
The baht has seen significant appreciation since July, and inflation is now less of a concern for the central bank, according to Mr. Kasem.
“We don’t believe inflation will be a major issue for the Thai economy this year or next, providing the Bank of Thailand with some leeway to lower its policy rate, particularly in light of the weak domestic economy,” he stated.
As reported by Kasikorn Research Center, the baht was trading at 32.97-32.99 against the dollar early Tuesday, slightly up from Monday’s closing rate of 33.01, partly buoyed by record-high global gold prices.
The think tank anticipates the baht will fluctuate between 33.00 and 33.50 this week.
Mr. Kasem noted that following the US Federal Reserve’s decision to cut its policy rate by 50 basis points last week to a range of 4.75% to 5%, analysts are expecting additional cuts of 75 basis points in the next two meetings this year, with projections indicating the federal funds rate could drop to 3% by the end of 2025.
These aggressive rate cuts by the Fed may attract more funds to the Thai market, further boosting the baht, he added.
“With a weak domestic economy and a strong baht, we anticipate the Bank of Thailand will reduce its rate by 25 basis points to 2.25% at the upcoming meeting on October 16,” Mr. Kasem said.
“Even with a cut, the Thai policy rate is likely to decrease more slowly than those of regional peers, which could pressure the central bank to react, as it may impact exports,” he explained.
CGS forecasts the central bank will lower rates by 50 basis points next year, bringing the policy rate to 1.75% by the end of 2025, which aligns with pre-pandemic levels.
Asia Plus Securities also expects the central bank’s Monetary Policy Committee (MPC) to act swiftly to stabilize the baht.
According to the brokerage, the Thai currency has strengthened rapidly as the US dollar weakened following the Fed’s rate cut. In the current quarter, the baht has appreciated 10.3%, making it the best-performing Asian currency, reaching its strongest level in 25 years.
“Thailand’s policy rate may be reduced by 25 basis points at one of the two remaining MPC meetings on October 16 or December 18,” Asia Plus noted in a research report.
