The Bank of Thailand (BoT) maintained its key interest rate at 2.50% during Wednesday’s meeting, marking the fifth consecutive time the rate has remained unchanged. This decision was anticipated given the sluggish economy and ongoing fiscal policy uncertainties, particularly following the Constitutional Court’s disqualification of Srettha Thavisin as prime minister last week.
The central bank’s Monetary Policy Committee (MPC) voted 6-1 to keep the one-day repurchase rate steady, which is now at its highest level in over a decade. One committee member proposed a reduction of the policy rate by 0.25 percentage points, citing the country’s diminished potential growth due to structural challenges and the aim of easing the debt burden for borrowers.
Since the fourth quarter of 2023, the monetary authority has held the key rate steady, even as inflation rates have remained below the BoT’s target range of 1%-3%.
The decision to retain borrowing costs at their highest level since 2013 coincides with Prime Minister Paetongtarn Shinawatra’s efforts to assemble her cabinet and establish policies, including a review of the 450-billion-baht household handout program initiated by her predecessor, property magnate Srettha Thavisin. The BoT had overlooked Mr. Srettha’s requests for a rate cut, instead pushing for a more targeted stimulus approach.
Although Southeast Asia’s second-largest economy experienced its fastest growth in five quarters during the April-June period, it still lags behind its regional neighbors. Caretaker finance minister Pichai Chunhavajira described the $500 billion economy as being “near crisis.”
Possibility for Rate Cut
In a poll conducted by Reuters, nearly all but three of the 27 economists expected the BoT to keep rates unchanged this week, with three analysts forecasting a quarter-point cut. The median prediction from the poll indicated that a rate reduction is not expected until the second quarter of 2025.
Kasikorn Research Center (K-Research), affiliated with Kasikornbank (KBank), concurs with other analysts, predicting that the MPC will keep the rate steady this week. Kanjana Chockpisansin, head of research at K-Research, stated, “The outlook remains the same due to the slow and uneven growth of the economy. If the risks of economic contraction rise, the MPC might consider a rate cut later this year, especially after the US Federal Reserve reduces its rates.”
Maybank also anticipates a stable policy rate this week amidst consistently declining real interest rates. Inflation was reported at 0.8% last month, an increase from -1.1% in January.
The BoT is likely to lower the rate by 0.25 percentage points in the first half of 2025, once global central banks begin easing policies, while maintaining the rate later in the year, as suggested by the Kuala Lumpur-based banking group in a research note.
Several economists, including those from Standard Chartered Plc, Capital Economics Ltd, and Oversea-Chinese Banking Corp, expected a dovish stance from Thai policymakers, paving the way for looser monetary settings in the fourth quarter.
As the Federal Reserve is projected to shift toward easing as early as next month, emerging currencies such as the baht have appreciated, thereby reducing imported price pressures and providing policymakers greater flexibility to bolster the economy.