The weaker-than-expected first-quarter gross domestic product growth could prompt the Bank of Thailand's Monetary Policy Committee (MPC) to cut the policy rate by as much as 50 basis points in the upcoming policy rate call, economists said.
Mathee Supapongse, the central bank's senior director for macroeconomic and monetary policy, admitted the 5.3% year-on-year growth rate was far lower than the central bank's 7% forecast.
However, the Bank of Thailand needs to look into details to determine the causes of the lacklustre performance, he said.
- See also: GDP growth slows
Bank of Thailand governor Prasarn Trairatvorakul said early this month that he might be inclined to lower the rate if economic growth starts to cool.
The central bank last month raised its 2013 GDP estimate to 5.1% and cut its inflation forecast to 2.7%.
The MPC is slated to meet on the much-awaited policy rate call on May 29. The government and exporters have ratcheted up pressure on the rate-setting committee to trim the rate as a means to tame capital inflows and the baht's gains.
Mathee: Q1 data well below forecast
The baht is Asia's best-performing currency this year.
The Royal Bank of Scotland predicted a 50-basis-point rate cut to 2.25% at the MPC meeting, saying that low interest rates are not statistically significant in fuelling credit growth.
However, high credit growth does tend to fan inflation significantly.
The bank also revised its baht forecast to 30 baht against the dollar by the end of the year from 28.50 baht projected recently.
Usara Wilaipich, senior economist at Standard Chartered Thailand, said: "Momentum from domestic consumption and investment, as well as exports, during the first three months of this year lost steam from the fourth quarter [last year].
"The economic growth in the second quarter could be even lower [from the first quarter] as it is difficult for exports to gain traction in the second quarter amid headwinds in Asian economies, while the government's investment [in infrastructure and water management projects] will kick off in the fourth quarter at the earliest," she said.
The rate-setting committee is expected to slash the benchmark rate by 25 basis points to 2.50%, she said, after it had stood for a fourth consecutive meeting at 2.75% since last November's meeting of the committee.
"The central bank would take action gradually to digest response [after the rate cut] from the foreign exchange market and economic aspects," said Ms Usara.
Standard Chartered Bank maintains its GDP growth forecast for Thailand at 4% for 2013.
Sharing her view was Edward Teather, a senior economist at UBS Securities Asia.
He forecast the central bank will trim the policy rate by 25 basis points due mainly to the disappointing economic growth data for the first quarter of the year.
"Lower-than-expected GDP growth would give the Bank of Thailand more room to ease monetary policy at its meeting on May 29," he said, adding that low inflation and unemployment rate, as well as improving manufacturing capacity utilisation, would also support the policy rate cut.
UBS earlier predicted the central bank will raise the benchmark rate by 75 basis points by the end of this year.
The research house has also revised down Thailand's 2013 GDP growth rate from earlier projection to 4.7% from 6%, in line with the NESBD's new forecasts of 4.2-5.2% from 4.5-5.5%.
UBS's optimistic outlook for the Thai economic expansion was based on strong manufacturing production data in March.
Phatra Securities senior economist Thanomsri Fongarunrung also said the central bank could consider the rate cut after the weaker-than-expected economic growth data.
"Downside risks to export growth remains, while a slowdown in domestic consumption and investment came earlier than our forecast in the second quarter," she said.
Su Sian Lim, HSBC's Asean economist, said: "Against the context of benign inflation, today's slower-than-expected GDP reading raises the odds of a 25-basis-point rate cut when the Bank of Thailand next meets on May 29.
"Beyond that, however, with domestic economic activity not exactly derailed, and external recovery hopefully gaining traction in the coming quarters, the need for large and/or sustained policy rate cuts remains in doubt."
Mark Matthews, head of Asia research at Bank Julius Baer, forecast a 5.5% growth rate in the Thai economy this year. Both Asia's robust economy and internal factors, particularly strong domestic consumption and investment, are the engine growth drivers despite the export slowdown.