The Bank of Thailand is expected to keep the policy rate at a decade-high level of 2.5% at its meeting on Wednesday, though analysts see a higher likelihood of a rate cut this year given growing headwinds facing the Thai economy.
Kasikorn Research Center (K-Research), the think tank of Kasikornbank (KBank), agrees with equity analysts that the central bank's Monetary Policy Committee (MPC) will maintain the rate at 2.5% this week.
With GDP growth averaging 1.9% in the first half of 2024, the economy is on track to expand in line with K-Research's forecast of 2.6% for the full year.
KBank projects the MPC will maintain the policy rate for the rest of 2024, yet Kanjana Chockpisansin, head of research, banking and the financial sector at K-Research, said there is a possibility for monetary policy easing "if the economy needs it".
"The outlook remains unchanged as the economy grows slowly and unevenly," Ms Kanjana told the Bangkok Post. "If the risk escalates that the economy will shrink, there is a possibility the MPC will slash the rate once this year, after the US Federal Reserve cuts it policy rates."
Maybank also projects a steady policy rate this week, against a backdrop of persistently falling real interest rates. Inflation tallied 0.8% last month, rising from -1.1% in January.
The central bank is likely to ease the rate by 0.25 percentage points in the first half of 2025 "when global central bank easing is well underway", and hold in the latter half, the Kuala Lumpur-based banking group said in a research note.
Maybank said with Pheu Thai leader Paetongtarn Shinawatra taking over from Srettha Thavisin as prime minister and forming a new cabinet, policy continuity is expected in the near term. The new premier recently said the flagship digital wallet handout needed further study.
"We expect the initiative to be reassessed and possibly aborted. Funds set aside for the digital wallet could conceivably be directed at other spending priorities," it noted.
The new government is also under pressure to protect local industries, countering supply shock from increased Chinese competition, said Maybank.
"For the longer term, investors are likely to turn more positive only when the new premier and cabinet demonstrate their commitment to executing strategic and structural economic reforms," said the bank.
BofA Securities said despite early signs of recovery in both demand and supply data, the economy faces downside risks, mainly driven by weak consumption of durable goods, while slow loan growth is likely to continue to put pressure on construction and real estate activities.
A significant portion of the decline in industrial production is related to structural factors, which are unlikely to improve in the near term, while regional exports have begun to slow, said the brokerage.
"While we expect GDP growth in the second half to be stronger than in the first half from a low base, the risk may be tilted to the downside," BofA said in a research note.