The Bank of Thailand could be prompted to cut the policy rate sooner than expected if the new government decides to delay the implementation of the digital wallet policy from the fourth quarter of this year, causing a severe drag on the Thai economy, say analysts.
Although the central bank's Monetary Policy Committee (MPC) last week decided to maintain the rate at 2.5%, the committee explicitly said the quarter-on-quarter momentum of the Thai economy would be weaker in the second half, said BofA Securities.
Private consumption would slow going forward as the income recovery is stunted among labourers in the manufacturing sector and the self-employed. Increased downside risks to the growth outlook were mentioned in the MPC's statement, particularly related to private investment and private consumption, BofA said in a research note jointly prepared by emerging Asia economist Pipat Luengnaruemitchai.
The MPC also expressed more concerns over slowing loan growth and deteriorating loan quality, saying it would keep monitoring how these issues affect economic activities. The statement signals the MPC's reaction to financial stability as a goal has "turned towards an easing bias", added the report.
"Given the change in tone of the MPC and a potentially smaller fiscal stimulus, we have changed our expectation for a rate cut from mid-2025 to December 2024," noted the report.
"If the incoming economic and asset quality data prove to be worse than expected, we think a cut could come even sooner. We expect economic momentum to remain weak into 2025, which would warrant further cuts, until the policy rate reaches the terminal rate of 1.75% by the second quarter of 2025."
CGS International Securities (CGSI) said even if the 10,000-baht digital handout is delayed, the Pheu Thai-led administration would come up with additional stimulus measures to increase domestic purchasing power, benefiting the retail sector.
Meanwhile, the increase in tourist arrivals should drive spending in tourism destinations, said the brokerage.
Economists at CGSI said if the digital handout is delayed, replacement stimulus projects during the rest of the year should help to pressure interest rates to fall faster.
The economists recommend an overweight position for retail stocks given the likelihood of rate cuts happening sooner than previously expected.
Downside risk comes from weaker than expected domestic consumption, which will drag down same-store sales growth, while the minimum wage hike will add pressure to selling, general and administrative expenses, meaning retail stocks are expected to benefit the most from the rate cut, noted the brokerage.
The home improvement sector may recover slowly because demand for construction materials and related products will recover six months after the rate cut, according to CGSI.
