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The Bank of Thailand (BoT) has once again snubbed the request of Prime Minister Srettha Thavisin to cut the interest rates, marking the snubbing for the 2nd such request so far this year.
The premier, who had openly advocated for the cut in the rates during the 1st meeting on February 7th, 2024, was snubbed with 5-2 vote in favor of keeping the rates at 2.50% while Srettha had called for at least a 0.25% rate cut.
The Prime Minister once again tried his luck this time and during an interview with Reuters just days ahead of the planned meeting of the Monetary Policy Committee (MPC) on April 10, 2024, he called for a cut to ‘stimulate’ the economy. This time he went as far as to call for a 0.50% rate cut in one go.
That 2nd call for rate cuts fell on deaf ears as the MPC once again voted 5-2 to keep the status quo, despite the expectations by most analysts that the rates would be cut.
Despite the calls, the Monetary Policy Committee (MPC), which comprises of 7 members with just 3 members being from the BoT, voted 5-2 in favor of keeping the interest rates at 2.5%, despite the repeated calls by the government to cut rates to stimulate the economy.
This time around analysts and economist have come out to say that the tone of the MPC was a bit more ‘hawkish’ and it feels that the economy this year is better than that seen during last year.
Pipat Luengnaruemitchai, chief economist at Kiatnakin Phatra Securities, came out to simply say that ‘with the hawkish statement that was given after today’s MPC meeting, the likelihood of a rate cut in the later half of this year looks much more difficult.”
Although a rate cut was expected by most analysts, but the MPC decided to keep the rates at status quo, came in as a surprise to many economists both domestically and abroad.
The calls for rate cuts were being made as many global central banks have been in the process of cutting rates, although the latest data from the United States of America (USA) came with the inflation data showed that it rose to 3.5% in March and the thus a rate cut from the 4-decade high rates in the USA is likely to be delayed further.
The decision by the MPC to keep the rates at 2.5% comes amid growing calls to cut as there is an urgent need to stimulate the economy that has been witnessing a gradual slowdown amid declining income and consumption.
Recently SCBx’s Economic Intelligence Unit had cut Thailand expected gross domestic product (GDP) to 2.7% from 3% it had forecast earlier citing the challenges to the manufacturing sector amid slower disbursement of the 2024 budget. It was not alone in slashing the forecast other economists and even the University of Thai Chamber of Commerce (UTCC) cut its projection to 2.6% from 3.2% it had projected earlier.
Expected Rate Cuts in 2nd half 2024
Although Pipat’s reading of the statemen by the MPC is that there is little if any chance of rate cut, other economists beg to differ.
“With still a relatively weaker underlying price pressures on the back of predominantly a prolonged sluggish domestic demand, we are revising our BoT policy rate forecast and now calling for 2 rate cuts from BoT at its June and August meetings,” Enrico Tanuwidjaja, economist at UOB in Singapore said in a note to clients.
The next MPC meeting is scheduled for June 12th and the one after that is for August 21st.
UOB’s Tanuwdjaja says that during these 2 meetings he expects 25 basis points (0.25%) rate cut each time as he views that inflationary pressures will remain muted and ‘we expect a more subdued growth’.
A slower economic growth would mean the need for the BoT to look to stimulate the economy and thus a rate cut would be needed.
He says that the continued ease of inflation in Thailand with the Ministry of Commerce expecting 2024’s inflation to be in the range of 0.0% to 1.0%. Despite the benign inflation expectations, there are risk from the rising oil prices and other external issues.
Tanuwidjaja sayd risks to the near-term inflation outlook are skewed toward the upside. Key upside risks are (1) rising global oil prices, (2) the depreciation of THB against USD, (3) a low base in the previous year, and (4) a sustained recovery of the tourism sector driving higher prices in the service sector. The downside risks are (1) a high base effect of raw food prices in the previous year, (2) a tepid overall economic activity weighing on demand, and (3) a moderation in wholesale prices due to intense competition.
“While we view that the policy priority of the central bank has shifted to financial stability, key growth engines, notably on the expenditure side, are likely to meaningfully soften, amid mounting downside risks. Hence, to achieve its growth projection of 2.5% -3.0% in 2024 and beyond, loosening monetary policy could be one supporting step,” he says.