EIC expects single rate cut by year-end
Quarter-point easing to keep risks at bay
The Bank of Thailand is likely to cut the policy rate by 25 basis points a single time during the remainder of the year to prop up the moribund economy amid growing uncertainties, according to the Economic Intelligence Center (EIC), a research house under Siam Commercial Bank (SCB).
Risks will prompt the Monetary Policy Committee to slash the benchmark rate to a record low of 1.25% by year-end, said Yunyong Thaicharoen, first executive vice-president of SCB and head of the EIC.
Thailand is suffering from the US-China trade rift, weak domestic consumption, swelling household debt, technological disruption and the stronger baht.
"Given the downside risk to the economy, easing monetary policy is needed to support growth momentum the remainder of the year," Mr Yunyong said.
Inflation is forecast at 0.9% this year, below the central bank's inflation target range of 1-4%, mainly due to softer crude oil prices, ebbing consumer confidence and a small hike in the minimum wage.
He expects the US Federal Reserve to cut its policy rate twice more this year, with the European Central Bank following suit.
Despite the Bank of Thailand's looming 25-basis-point cut, offshore funds are poised to continue flowing into Thai markets, especially the bond market, and this will strengthen the baht further, said Mr Yunyong, though fund inflows in the final three months are liable to be smaller than normal for the period because of asset diversification.
Since monetary policy easing alone won't curtail the baht's strength, fiscal action is needed as well, he said.
The baht, which is the best performing currency in Asia this year, has gained 23% against the US dollar over the past five years and 6-7% since the start of this year.
The EIC is set to lower its full-year GDP growth forecast of 3% in October.
Even in the event of additional economic stimulus, GDP growth is estimated at 2.7% this year, Mr Yunyong said.
The government's first economic stimulus package, focusing on low-income earners with the bulk of the budget allocated to soft-loan schemes, will not increase loan demand or significantly contribute to economic growth, he said.