Central bank rate decision puts spat with PM in spotlight
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Central bank rate decision puts spat with PM in spotlight

A view of the Bank of Thailand. (Photo: Reuters)
A view of the Bank of Thailand. (Photo: Reuters)

As the Bank of Thailand (BoT) prepares to review monetary policy settings on Wednesday, investors will be watching for any sign that Prime Minister Srettha Thavisin’s relentless campaign for rate cuts is influencing the central bank.

Seventeen of the 24 analysts surveyed by Bloomberg expect the BoT to keep its benchmark interest rate steady at 2.5% for a third straight meeting, with the rest seeing the possibility of a quarter-point cut.

The outcome will determine whether already deteriorating government-central bank relations can get back on track, or head further south — which is bound to make investors more nervous. Mr Srettha, also the finance minister, has repeatedly stressed the need for rate cuts, including in a media interview on Monday.

He has cited waning demand and lackluster growth to support his case. The central bank has so far rejected those arguments, including Mr Srettha’s call in February for an emergency rate cut, saying they are problems that cannot be fixed by monetary tools.

“The central bank will hold off from pulling the trigger just yet,” said Krystal Tan, an economist at Australia & New Zealand Banking Group. “The odds are tilted in favour of a June or August cut instead, with the timing dependent on incoming second-quarter economic data.”

That said, a senior central banker did offer cues that policy is closer to a change. The BoT will weigh the need and timing of adjusting its neutral interest-rate stance at Wednesday’s meeting, Assistant Governor Piti Disyatat said in an interview to Bloomberg Television last month.

Here’s what to watch out for in the decision:

Policy signals

While an easing, if there is one, will be the first since 2020, Mr Piti did caution that a recalibration in rates if any should not be viewed as the start of an easing cycle. 

Investors and analysts will also be parsing the statement for clues on where rates are headed. The previous decision was a 5-2 split vote, and watching for changes in the voting pattern might be a good starting point for central-bank watchers.  

“The growth outlook seems weak which makes me think a cut is needed in the second quarter,” said Shreya Sodhani, an analyst at Barclays Bank Plc, who’s forecasting a cut on Wednesday.  “The timing is a close call between April and June.”

ANZ’s Ms Tan, however, said the BoT will probably want to observe the strength of the economy after the passage of budget last month. The government has decided to spend more to stimulate the economy, in the process widening its budget shortfall next fiscal year by US$4.2 billion. 

Economic forecast

The central bank is expected to revise down its gross domestic product and inflation forecasts after a string of weak economic prints. In February, the BoT trimmed its 2024 GDP view to 2.5%-3%, down from 3.2% seen in November and 4.4% previously. 

Weak global demand, decline in manufacturing and delayed public spending have weighed on the nation’s economy, which last year expanded by 1.9% — extending a decade of average sub-2% growth that’s the slowest in Southeast Asia.

The baht has gone from the best-performing Asian currency in the fourth quarter last year to the biggest loser this year. The local currency weakened 7% year to date. The central bank has not shown much concern about the baht so far. Mr Piti earlier said that the currency weakness “has not posed a particular problem in terms of stability or in terms of growth.”

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