The Bank of Thailand is projected to start cutting interest rates in the second half of 2024, in line with similar moves by the US Federal Reserve, say analysts, as the domestic economy needs more support to drive growth next year.
BMI, a unit of New York-based Fitch Solutions, said it believes the Thai central bank's tightening cycle finished after October data showed the economy slipping into deflationary territory for the first time since August 2021.
"While we expect price pressures to pick up over the coming months, the bigger picture is inflation will stay within the central bank's target band of 1-3% in 2024," said BMI.
On Wednesday, the Monetary Policy Committee decided to keep its benchmark policy rate unchanged at 2.50%.
Despite the latest decision, financial conditions are at their tightest since 2013 after cumulative hikes of 200 basis points since August 2022.
Central bank governor Sethaput Suthiwartnarueput stated interest rates have already reached a neutral level and it is time to put the brakes on further tightening, said the research house.
"We think rate cuts are on the horizon in the second half of next year, similar to our expectations for the Fed. 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," said BMI.
The firm noted the central bank is also "less optimistic on growth" after third-quarter figures slowed for a third consecutive quarter, defying consensus expectations.
"The bank revised its growth forecast from 4.4% to 3.8% in 2024 as mentioned in the monetary statement. The Thai economy requires more support and policymakers will be cautious of overtightening to avoid stifling an already lukewarm recovery," said BMI.
Maybank Securities shared the same view as BMI, saying a rate cut is possible in the third quarter of 2024.
After pausing the rate hike on Wednesday following eight increases, the central bank signalled that it would be on hold for an extended period, stating that "the current policy interest rate is appropriate for supporting long-term sustainable growth".
The central bank lowered its inflation forecast for next year to a target range of 1-3% as the dampening effects of last year's high base on inflation fade away, and the disinflationary impact of energy price subsidies wears off, Maybank Securities said in a research note.
"With GDP growth rising to potential, baseline inflation normalising to the target range, and household and corporate debt ratios gradually falling, we expect the central bank to stay on hold and start cutting rates in the third quarter of next year," said the brokerage.