The Bank of Thailand is expected to start cutting the policy rate before mid-year as inflationary pressure has eased following six consecutive months of prices contracting, while the economy is underperforming, according to economists.
Pipat Luengnaruemitchai, emerging Asia economist at Bank of America, said weak core inflation figures imply higher real interest rates and a tighter policy stance.
This should open the door for the central bank to cut rates, especially if the incoming economic data also resonates weak domestic demand, he said.
The consumer price index fell 0.47% in March year-on-year after contracting 0.77% in February.
The market consensus for March was a contraction of 0.40%.
Headline inflation remained negative for a sixth consecutive month.
Inflation is expected to remain negative until at least April as government subsidies remain in place, Mr Pipat said.
"We reiterate our call for two rate cuts in 2024, with the first one in June and signals of a changing stance from the Monetary Policy Committee [MPC] at the April 10 meeting," he said.
"Upside risks to headline inflation include a discontinuation of government subsidies and a potential hike in global oil prices, which could lower the chance of an MPC rate cut."
BMI, a unit of New York-based financial information service company Fitch Solutions, shared a similar view, saying the delay in the digital wallet scheme presents the Bank of Thailand with an option to loosen monetary policy earlier than forecast.
"We previously expected the bank to cut rates sometime in the second half when it fully processed the inflationary impact of the government's fiscal plans," BMI said in recent research.
But price pressures have "become less of a constraint lately" as the economy has fallen into deflationary territory since October 2023 based on weak domestic and external demand, noted the research.
The absence of any substantial stimulus will not reverse the trend of falling prices and the economy's underperformance provides another reason for the central bank to act sooner rather than later, according to BMI.
The delay of the digital wallet scheme prompted BMI to lower Thailand's 2024 GDP growth forecast from 3.8% to 3%, with the country's post-pandemic recovery continuing to lag regional peers.
"We think there is an increasing likelihood the central bank will cut rates earlier, possibly even before the first half of the year concludes," noted the information service.