The Bank of Thailand's rate-setting committee is expected to cut the policy rate by 0.25 percentage points to a record low of 1% this quarter to shore up the country's economic growth and slow the baht's appreciation, says Standard Chartered Bank (Thai).
Monetary policy remains the main tool to steady the economy, given that fiscal stimulus will not be significant with the 2020 budget bill still under Senate deliberation, said Tim Leelahaphan, Thailand economist at Standard Chartered Bank.
"This rate cut is a non-consensus call, as the market expects the policy rate to remain unchanged," he said. "We predict a further rate cut is still possible after the first quarter if the economy remains in the doldrums."
The Bank of Thailand slashed the benchmark rate twice last year to a record low of 1.25% to boost growth.
The 3.2-trillion-baht budget bill for fiscal 2020 remains in limbo after some MPs reportedly used electronic cards to vote without being present in parliament when the House was deliberating Sections 39-55 of the bill. The House's vote could be considered invalid and the months-delayed bill is likely to be postponed further if that is the case.
Fiscal spending, especially the investment budget, is worrisome, said Mr Tim.
If the government manages to spend a higher investment budget for this fiscal year than previous years and the Eastern Economic Corridor makes great strides, it will be a boon, he said.
Mr Tim predicts the baht will continue to rise to 29.25 to the dollar this quarter, supported by tourism income and delays in the 2020 annual budget bill reducing capital goods imports.
The currency is expected to reverse course to gradually weaken to 31 per dollar in the second quarter, he said.
The baht was the top-performing currency in Asia last year, gaining nearly 9% against the greenback. Hovering around 30.4 yesterday, it has fallen 1.6% versus the dollar so far this year.
The baht at 30 per dollar continues to put pressure on exports and the local economy, said Mr Tim.
"Goods exports will pick up if the trade tension between the US and China is relieved, but the strong baht continues to blunt the competitiveness of agricultural goods exports," he said.
StanChart is optimistic on economic growth this year, predicting 3%, above the central bank's estimate at 2.8%. It is impossible for growth to reach 4% anytime soon, as it did in 2017-18, because of broad-based weakness, said Mr Tim.
"Domestic activity is unlikely to improve significantly. Uncertainties surrounding the fiscal budget and rising political noise are contributing to our weak economic outlook, while external risks including the US-China trade dispute and Middle East tension also deal a blow to growth," he said.
There is no clear evidence Thailand is benefiting from the US-China trade dispute via investment relocation, and the increase in foreign direct investment cannot be sustained, said Mr Tim.