Despite political pressure, analysts expect the Bank of Thailand to refrain from cutting interest rates until the second half of this year, in line with predictions for the US Federal Reserve, saying it is too early to consider monetary easing now.
If Bank of Thailand governor Sethaput Suthiwartnarueput does stand pat on rates, it will contrast with constant pleas from Prime Minister Srettha Thavisin for policy easing as the premier says mounting deflationary pressures provide the bank leeway to implement rate cuts earlier than previously anticipated, said BMI, a unit of Fitch Group.
The Thai economy has experienced slowing inflation for three consecutive months, with December data indicating a 0.8% year-over-year rise in consumer prices, marking the sharpest drop in almost three years.
However, BMI views the current movements as likely to subside before long as the government's stimulus efforts begin to take effect.
A key initiative is the digital wallet scheme, expected to channel about 510 billion baht or roughly 3% of GDP into the economy.
"Although the launch date has already been postponed, we are confident its implementation will boost inflationary pressures," the London-based research firm said, adding that it projects Thai inflation to rise from an average of 0.8% in 2023 to 2.4% this year.
BMI projects no change to the Bank of Thailand's monetary stance over the coming months, including at its next interest rate meeting on Feb 7.
"It is too early to contemplate cuts, especially as the full impact of previous stimulus measures has yet to materialise. Moreover, Thai interest rates remain very low when compared to its regional peers," said BMI.
"We anticipate the central bank will initiate its easing phase in the latter half of the year, following a potential shift in the Fed's policy stance towards easing. Our projections include a total reduction of 50 basis points, bringing the rate down to 2.00% by the end of 2024."
BMI noted risks to its interest rate forecast lean towards a longer hold.
"High inflation in major economies remains a real constraint on many global central banks," said the unit.
"If inflation proves to be stickier than expected, the Fed could very well keep interest rates at current levels for a longer period and the Bank of Thailand will likely follow suit."
Kasikorn Research Center (K-Research) shared similar views, anticipating the Fed would start to trim US rates in the third quarter and potentially have three to four cuts this year.
"The Fed is unlikely to cut the rate as fast and as sharply as the market has expected," said Naraphon Sangsana, researcher at the think tank.
K-Research's latest view on the Fed's rate cut is based on US GDP increasing more than expected, prompting the centre to believe the US economy can have a soft landing and inflation gradually move to the central bank's target, she said.