The Bank of Thailand's Monetary Policy Committee (MPC) will likely stand pat on the policy rate for the rest of this year after keeping it unchanged at 2.5% for a second straight meeting yesterday.
"This technical recession is only a temporary one," said Usara Wilaipich, a senior economist at Standard Chartered Bank.
She said the Bank of Thailand's view that risks are skewing towards financial stability while the economy could pick up in the second half of this year could also reduce the scope of the monetary easing.
Thailand has entered into a mild recession by definition after posting quarter-on-quarter contractions in the first and second quarters of a revised 1.7% and 0.3%, respectively.
Thammarat Kittisiripat, an assistant vice-president of TMB Bank, supported Ms Usara's views but said the odds of a rate cut remains possible if global economic growth does not recover this year as expected.
The rate-setting committee yesterday said economic stability, capital outflows and swelling household debt were the main factors for its decision.
Paiboon Kittisrikangwan, a central bank assistant governor and secretary of the MPC, said the rate-setting committee voted 6 to 1 to keep the policy rate steady.
It deemed the current accommodative monetary policy to be necessary and appropriate for the ongoing adjustment of the Thai economy.
A fresh round of capital outflows in emerging markets triggered by concerns the US Federal Reserve will start paring its monthly asset purchase next month also encouraged the MPC to maintain its one-day repurchase rate, said Mr Paiboon.
One MPC member voted to slash the rate by 25 basis points to support the continuity of growth next year.
Household debt is expected to decelerate and return to normal levels, as consumers shouldering a higher debt burden now would be discouraged from borrowing more, said Mr Paiboon, adding that it is difficult to estimate when the debt level will start to decline.
The central bank pegs current household debt at 8.97 trillion baht or 77.5% of gross domestic product.
Mr Paiboon said the Thai economy is expected to rebound in the second half thanks to the gradual economic recovery in the G3 markets of the US, EU and Japan, which are showing signs of improvement.
Meanwhile, the Chinese economic slowdown has bottomed out, and the economy is not expected to contract further after experiencing a soft landing.
"In periods to come, domestic demand and exports are expected to see a gradual recovery, with some risks of delay. Supply-side constraints may also play some part in holding back growth of private investment and exports. Nonetheless, underlying economic fundamentals and accommodative financial conditions should lend some support to growth momentum," the central bank said in a statement.
Mr Paiboon said despite the slow credit growth, bank loans continue to expand robustly, currently estimated at a 13% rate.
Bank loan expansion can help to boost consumption and investment incentives for the private sector.
"Most of the 2-trillion-baht infrastructure development projects are not expected to reach fruition soon and investment capital depends on numerous stages of the development phase, so there is a minimal effect on driving the economy in the short term," said Mr Paiboon.