Pundits predict BoT rate cut in H2
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Pundits predict BoT rate cut in H2

Move in line with Fed rate cut decisions

A bank employee gathers baht notes at a branch of Kasikornbank. The policy rate is expected to be slashed from the current rate of 2.5% to 2% this year, according to Mr Amonthep. (Photo: Reuters)
A bank employee gathers baht notes at a branch of Kasikornbank. The policy rate is expected to be slashed from the current rate of 2.5% to 2% this year, according to Mr Amonthep. (Photo: Reuters)

Economists predict the Bank of Thailand (BoT) will start to cut its policy rate in the second half to 2% in line with the country's economic situation and based on the assumption of a United States Federal Reserve (Fed) policy rate cut in the second quarter.

Amonthep Chawla, chief economist of CIMB Thai Bank (CIMBT), said he expects the central bank would cut its policy rate two times this year starting in the third quarter, around August, and in the fourth quarter by a quarter-point per time.

In this scenario, the policy rate is expected to be cut from the current 2.5% to 2% this year.

The assessment of the policy rate cut in the second half of this year is on the back of low inflation and economic growth.

At present, inflation is still lower than the central bank's target range of 1-3%.

Meanwhile, Thailand's GDP growth would be around 3% lower than the potential rate.

In the baseline scenario, CIMBT forecasts GDP growth in 2024 of 3.1% without the digital wallet scheme.

If the stimulus package is implemented, the country's economic growth would increase to 3.6% this year.

In addition, Mr Amonthep said the Fed is expected to begin cutting its policy rate in May.

Therefore, the Bank of Thailand would also consider narrowing its gap with US interest rates to contain foreign capital outflows.

"The central bank's policy rate movement would depend on the economic situation rather than political issues. Normally, the Bank of Thailand would take into consideration three core factors which include the inflation rate, economic growth and financial stability in managing monetary policy," he said.

Prime Minister Srettha Thavisin said on Monday that the BoT has raised interest rates despite inflation easing for several months in a row, which is not good for the economy at it affects low-income earners, and small and medium sized-enterprises.

The Bank of Thailand has raised its policy rate since August 2022, from 0.5% to 2.5% at present.

In December 2023, headline inflation contracted 0.8% year-on-year for the third consecutive month.

On the other hand, Naris Sathapholdeja, head of ttb analytics, said he anticipates that the central bank would hold its policy rate unchanged at 2.5% by the end of this year in the base-case scenario.

However, there is a greater possibility that the central bank would begin to cut its rate in the second half as a result of low inflation and economic growth.

The BoT uses a flexible inflation targeting framework to keep the rate at an appropriate level. Thailand's policy rate and inflation rate continued to be the lowest in Asean.

On average, the policy rate of Asean central banks is around 3.25% to 3.5%.

In the meantime, the net interest margin of Asean peers is in line with Thailand's banking industry at 3% or higher.

However, the return on equity of local banks is lower than regional peers, he said.

Krungthai Compass, a research unit of Krungthai Bank, estimates that headline inflation would be 1% this year due to the lower energy prices from last year.

In December last year, the headline inflation declined by 0.83% year-on-year, while core inflation rate was at 0.58%.

Headline inflation, gauged by the consumer price index, declined by 0.83% year-on-year in December.

Core inflation, which excludes volatile food and energy prices, rose by 0.58% year-on-year in December.

For 2023, headline inflation expanded 1.23%, while core inflation rose 1.27%.

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