Monetary policy should take a central role in driving economic growth next year, while fiscal policy diminishes as a tool to address the fiscal deficit, says Supavud Saichuea, chairman of the National Economic and Social Development Council.
Speaking at the "2025 Economy Deep Dive: Opportunities and Challenges" event hosted by Krungthai Card, Mr Supavud said Finance Minister Pichai Chunhavajira has indicated a focus on reducing the fiscal deficit. As a result, the government is expected to scale back economic stimulus around mid-2025.
At that point, monetary policy will take on a more crucial role, replacing fiscal policy to sustain momentum in the Thai economy, he said.
Mr Supavud said the Monetary Policy Committee (MPC) is expected to begin cutting the policy rate in the second half of 2025, reducing the benchmark rate from 2.25% to 1.5% by the end of the year. The MPC is expected to maintain the current rate at its meeting on Wednesday, he said.
"Fiscal and monetary policies should shift based on economic conditions. Although the government and central bank may have differing views, they can still collaborate effectively to support the Thai economy," said Mr Supavud.
He said the inflation rate may rise as the economy picks up. While the central bank targets inflation within 1-3%, Thailand's inflation has not reached 2% in the past decade, averaging around 1% per year.
Regarding the US Federal Reserve's dot plot, the Fed aims to keep its policy rate 0.5 percentage points higher than the inflation rate. For example, if inflation is 2%, the policy rate would be set at 2.5%. If the Bank of Thailand follows a similar approach, its policy rate of around 2% would be relatively high, given the current inflation estimate of 0.3-0.4% for this year, said Mr Supavud.
The dot plot represents Fed officials' projections for future interest rates, specifically the federal funds rate. The chart is updated quarterly and communicates the Fed's monetary policy outlook to the public and financial markets.
He forecasts Thai GDP growth of 2.7% this year, driven by tourism, exports and government stimulus, expecting them to continue to support the Thai economy through mid-2025, with growth rising to 2.9% next year.
However, US economic policies under president-elect Donald Trump must be monitored next year, particularly tariffs, taxes, trade protection and immigration policies, said Mr Supavud. The US is likely to focus on countries with significant trade surpluses, which could impact Thai exports in 2025, he said.
Protectionist policies under Trump could affect global trade, contribute to higher inflation, and lead to further interest rate cuts by the Fed in 2025, said Mr Supavud. The Fed is expected to reduce its policy rate twice in the first half of 2025.