CIMB Thai Bank (CIMBT) forecasts that the Bank of Thailand is likely to significantly reduce its policy rate by one percentage point between December 2024 and next year, in line with an anticipated cut in the US policy rate.
CIMBT chief economist Amonthep Chawla said the bank expects the regulator's Monetary Policy Committee (MPC) to cut the policy rate by 0.25 percentage points in December this year to 2.25%. The expectation is based on the inflation rate entering the central bank's target range of 1-3% in the second half of this year.
According to Mr Amonthep, the US Federal Reserve is projected to reduce its policy rate twice this year in the months of September and December. It would slash the rate again three times next year in an effort to contain the rate of inflation amid economic growth.
"Given this scenario, the MPC is expected to follow suit by cutting the policy rate three times throughout 2025, at the rate of 0.25 basis points per reduction, resulting in a policy rate of 1.5% by the end of next year," he said.
Mr Amonthep said the rate cuts should ease financial costs, encourage investment and support Thai economic growth over the longer term.
The country's GDP growth is below its potential rate of 3%, which could lead to stagnation if economic stimuli and reforms are not implemented, he said.
CIMBT is maintaining its forecast for Thai GDP growth in 2024 at 2.3%, following a higher-than-expected 1.5% growth year-on-year in the first quarter. The bank expects GDP growth to improve to 1.8% in the second quarter, reach 2% in the third quarter, climb to 3.9% in the fourth quarter, then stand at 3.2% in 2025.
"We do not factor in the government's digital wallet handout scheme in our economic momentum projections. The [Thai] economy is expected to improve in the second half of this year, driven by tourism, domestic consumption, and investment," Mr Amonthep said.
The bank has revised the public consumption growth forecast for 2024 up from 1.7% to 3.3%, public investment from a 1.9% contraction to 2.3% growth, and private investment growth from 2% to 3.4%. The tourism sector, in particular, is expected to be a major driver of the economy in 2024 and 2025, with foreign arrivals forecasted to reach 35.6 million and 39.1 million, respectively.
However, Mr Amonthep noted that external factors, including geopolitical tensions, general elections in the world's key economies, and the direction of US interest rates, will pressure Thailand's economy next year.
In addition, Thailand's weaker manufacturing sector could hinder economic expansion in the long term, he said.