The Bank of Thailand has kept its policy rate unchanged at 2.25% as widely expected, following a surprise cut in October, preserving policy space amidst growing uncertainties ahead.
The Monetary Policy Committee (MPC) voted unanimously to maintain the policy rate at 2.25% during its final meeting of 2024 on Wednesday. In six meetings this year, the MPC reduced the policy rate only once in October, keeping it unchanged at the other five meetings.
According to MPC secretary Sakkapop Panyanukul, the committee considered the rate appropriate for supporting an economy operating near its potential, guiding inflation towards the target range, and ensuring long-term macro-financial stability, while preserving flexibility to address rising uncertainties.
"The policy rate remains in a neutral zone, unlike the easing cycles of other central banks, such as the US Federal Reserve," said Mr Sakkapop. "We acknowledge heightened uncertainties ahead and will monitor developments when determining future monetary policy."
He said global economic policies, including those of the US, could influence inflation and monetary policy worldwide and in Thailand.
Mr Sakkapop said the Thai economy is grappling with increased external competition and heightened uncertainties, particularly because of the policies of major economies.
However, the overall economic outlook remains largely consistent with previous projections. Tourism-related services continue to improve, yet manufacturing production has slowed, especially for businesses facing pressures from declining competitiveness.
Thailand's economy is projected to grow by 2.7% in 2024 and 2.9% in 2025, driven by tourism, domestic demand, and exports of electronics and machinery, which are expected to benefit from a recovery in the global technology cycle.
However, the recovery remains uneven across sectors. While tourism-related industries are improving, small and medium-sized enterprises and specific manufacturing sectors face pressures from reduced competitiveness, according to the MPC.
"For instance, the automotive industry has been negatively affected by both price and demand factors as a result of an uneven income recovery for households," said Mr Sakkapop.
Looking ahead, the policies of major economies remain highly uncertain, making the monitoring of developments essential as they could impact Thailand's merchandise exports and private investment, he said.
Headline inflation is forecast at 0.4% and 1.1% in 2024 and 2025, respectively.
Core inflation is estimated at 0.6% and 1% in 2024 and 2025, respectively, in tandem with the economic outlook and cost pass-through effects on food items, noted the MPC. Overall, medium-term inflation expectations remain consistent with the target range of 1-3%.
Analysts said the MPC's decision aligns with market projections, as Thailand's economy shows no signs of slowing.
"Economic conditions remain consistent with the central bank's earlier assessments, though risks lie ahead," said Nattaporn Triratanasirikul, deputy managing director of Kasikorn Research Center (K-Research).
Thailand's economy is poised for stronger growth in the final quarter of this year compared with the first three quarters, she said.
K-Research believes the central bank may begin lowering interest rates in the first half of 2025. However, potential challenges next year include a global trade war, a slowdown for China's economy, and Thailand's high household debt levels, said Ms Nattaporn.
Meanwhile, Maybank Securities forecasts Thai GDP growth of 2.8% in 2025, up from 1.9% in 2023 and 2.6% in 2024, driven by increased government spending and private sector investment.
"We think the biggest uplift will come from capital expenditure disbursement," said Chak Reungsinpinya, head of research at Maybank Securities (Thailand). "The delay of the 2024 budget approval created a significant spending gap, with spending accelerated from June."
At the end of September 2024, only 65% of the annual capital expenditure budget had been spent.
"The unspent portion of the 2024 budget, combined with disbursements from the fiscal 2025 budget, will fuel strong government investment next year," said Mr Chak.
Maybank predicts net exports will remain a key contributor to GDP growth. In contrast, private consumption growth is expected to slow to 2.5% in 2025, compared with 3.9% in 2023 and 3.1% in 2024, he said.