The Bank of Thailand (BoT) left its key interest rate unchanged for a fifth straight meeting on Wednesday, as widely expected, despite a sluggish economy and fiscal policy uncertainty after the Constitutional Court dismissed Srettha Thavisin as prime minister last week.
The central bank's Monetary Policy Committee (MPC) voted 6-1 to hold the one-day repurchase rate at 2.50%, the highest in more than a decade. One MPC member voted to cut the policy rate by 0.25 percentage point to reflect Thailand's lower potential growth as a result of structural challenges, and to partly alleviate debt-servicing burden for borrowers.
The monetary authority has kept the key rate steady since the fourth quarter of 2023 even as inflation has stayed below the BoT's 1%-3% target.
The decision to keep borrowing costs at the highest level since 2013 comes as Prime Minister Paetongtarn Shinawatra picks her team and formulate policies including reviewing the government’s 450-billion-baht household handout scheme planned by her predecessor and property tycoon Srettha Thavisin. The BoT had resisted calls from Mr Srettha to cut rates while urging him to implement a more-targeted stimulus program.
Srettha Thavisin, left, and Paetongtarn Shinawatra. (Photo: Pattarapong Chatpattarasill)
While Southeast Asia’s second-largest economy grew at the fastest pace in five quarters in the April-June period, it continues to lag the expansion of its neighbours. Pichai Chunhavajira, who continues as caretaker finance minister while Mrs Paetongtarn finalises her team, described the $500 billion economy as "near crisis."
Possibility for cut
All but three of 27 economists in a Reuters poll had expected the BoT to keep the rate unchanged this week. Three economists had predicted a quarter-point cut.
The median forecast in the poll was that a rate cut is not expected until the second quarter of 2025.
Kasikorn Research Center (K-Research), the think tank of Kasikornbank (KBank), agrees with analysts that the MPC will maintain the rate this week.
"The outlook remains unchanged as the economy grows slowly and unevenly," Kanjana Chockpisansin, head of research, banking and the financial sector at K-Research, 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 its 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 BoT 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.
A number of economists, including from Standard Chartered Plc, Capital Economics Ltd and Oversea-Chinese Banking Corp, anticipated a dovish tone from Thai policymakers on Wednesday, paving the way for looser settings in the fourth quarter.
As the Federal Reserve is expected to pivot to easing as early as next month, emerging currencies including the baht have appreciated, further easing imported price pressures and giving policymakers more leeway to support the economy.