Private investment is set to rise as financial costs ease after commercial banks responded in kind to the Bank of Thailand's interest cut of 0.25% earlier this month, according to Kasikorn Research Center (K-Research).
About a week after the Monetary Policy Committee voted to trim the policy interest rate on Oct 16 to 2.25%, commercial banks embarked on cutting their lending rates by up to 0.25%, effective from the beginning of November.
They have also extended the period of providing measures to support vulnerable debtors until the end of the year.
K-Research views that the gradual reduction in lending rates will help ease the financial costs of companies and individual borrowers. About 40.9% of total loans in the banking system would benefit from the rate cuts in the last two months of the year.
Commercial banks' one-way interest rate cut will reduce the interest burden of individual and business debtors by almost 1.3 billion baht over the two-month period, while more loans will see the interest rate revised from the beginning of next year.
In practice, a 0.25% interest rate cut is unlikely to have an effect on monthly debt instalments, in other words, it will not immediately reduce the debt service ratio of debtors. This is because loan contracts of retail debtors, such as home loans and personal loans with collateral, and business loans, especially of small and medium enterprises (SMEs), generally have a fixed monthly instalment amount comprising of the interest rate and principal loan.
"Interest rate reduction will have an effect on the interest debtors have to pay per month, but banks or financial institutions will increase the principal amount. The benefit debtors receive will be in the form of closing that loan contract faster than the original schedule," K-Research said.
In addition, if debtors want to reduce overall expenses more effectively, it may be necessary to reduce other expenses, it said, adding that the top three household expenses are: food, beverages and tobacco; home appliances; and travel expenses.
Meanwhile, the top three costs of businesses, especially SMEs, are raw materials, labour and rental fees, all of which are significantly larger than interest expenses.
For the overall picture of 2024, K-Research sees the growth rate of the banking system's loans at no more than 1.5%, saying financial costs that have started to decrease is the single factor affecting the disbursement of loans.
"Individual and business borrowers are likely to consider other factors, especially the overall situation and trends of the economy in the future, which will affect their investment and spending plans, consumption, and debt repayment ability in the future," the think tank noted.