Economists anticipate the Bank of Thailand will opt to lower its policy rate on Wednesday, giving a short-term boost to the country's economy, which has been hindered by delays in budget disbursement.
Amonthep Chawla, chief economist at CIMB Thai Bank (CIMBT), predicts the central bank's Monetary Policy Committee (MPC) will vote 4-3 on Wednesday to reduce the policy rate at its meeting.
More MPC members are expected to vote for a rate cut than at the committee's last meeting, he said.
At the previous meeting in February, the MPC voted 5-2 to maintain the policy rate, with two members opting for a rate cut because they believed the neutral interest rate had significantly declined, attributed to a lower potential economic growth rate amid intensified structural impediments.
"Finding the right balance between an appropriate policy rate and the potential growth of the economy is likely a key factor driving the anticipated rate cut," Mr Amonthep said.
Delayed disbursement of the fiscal 2024 budget has subdued economic activity and weakened consumer purchasing power.
As a consequence, the expected rate cut should support a short-term economic recovery, he said.
CIMBT estimates the MPC will cut the policy rate on two consecutive occasions in April and June, each by 0.25 percentage points, chopping the rate to 2% by year-end.
However, the bank said the lower policy rate is not expected to significantly spur economic growth in Thailand this year because of long-standing structural problems.
CIMBT downgraded its Thai GDP growth forecast this year to 2.7% from 3.1%.
The bank recently assessed the growth potential of the economy as higher than 3%, but now believes it has fallen below that threshold.
The World Bank projected a decline in Thailand's potential GDP growth post-pandemic, estimating an average of 2.7% per year between 2023 and 2030, marking a decrease of 0.5 percentage points compared with the previous decade.
During a prosperous period between 1960 and 1966, the country's economy averaged annual growth of 7.5%.
Between 1999 and 2005, following the Asian financial crisis, the economy sustained a growth rate of 5%.
Mr Amonthep suggested Thailand needs structural reform, recommending a collaboration between monetary and fiscal polices to strengthen potential GDP growth over the long term.
SCB EIC, a research centre under Siam Commercial Bank, also expects the MPC to commence cutting the policy rate by 0.25 percentage points on Wednesday, citing underlying structural economic challenges.
Somprawin Manprasert, chief economist at SCB EIC, said a rate cut would not only provide room for the MPC to readjust its monetary policy in line with structural changes in the economy, but would also ease the debt burden, particularly for vulnerable companies and households facing mounting exposure because of elevated interest rates.
According to SCB EIC's projections, the MPC is likely to reduce its rate by 0.25 percentage points in June, marking a second rate cut for the year.
However, Kasikorn Research Center (K-Research) expects the committee to maintain the rate at Wednesday's meeting.
K-Research expects the central bank to start cutting the policy rate in June, followed by subsequent reductions of 0.25 percentage points.
"The MPC is likely to cut its rates after the US Federal Reserve to avoid potential capital outflows and prevent the baht from depreciating against the dollar," K-Research noted.