As expected, the Monetary Policy Committee of the Bank of Thailand (BoT) voted unanimously to leave its benchmark policy interest rate unchanged at 2.50% on Nov 29. Financial conditions are already at their tightest since 2013 after the central bank lifted rates by a cumulative 200 basis points since August 2022, notes BMI, a Fitch Solutions company.
BMI says it is maintaining its expectations that the tightening cycle is over and there are few reasons to believe otherwise. "[BoT governor Sethaput Suthiwartnarueput] has explicitly stated that interest rates have already reached the neutral level and that it is time to push the brakes on further tightening," it said.
"As for next year, we think cuts are on the horizon in the second half, similar to our expectations for the US Federal Reserve.
"However, we note that risks are skewed to the upside. And is heavily dependent on the impact of the government's stimulus package which will stoke price pressures."
BMI analysts gave two reasons to support the conclusion that the terminal rate has been reached Thailand. For starters, October's data show the Thai economy falling into deflationary territory for the first time since August 2021. "And while we expect price pressures to pick up over the coming months, the bigger picture is that inflation will still stay within the central bank's target band of 1-3% in 2024," they wrote.
The Thai economy also requires more support. Third-quarter 2023 growth figures showed a slowdown for the third consecutive quarter, defying consensus expectations for an acceleration.
"Our projections for 3.8% growth in 2024 mark a substantial improvement over 2023. But it is still quite far off the government's target of 5.0%," the report said.
Similarly, the central bank is also now less optimistic on growth -- it has revised its growth forecast from 4.4% to 3.8% in 2024. "Policymakers will be cautious of over-tightening to avoid stifling an already lukewarm recovery," BMI concluded.