19-8-2024 (BANGKOK) The Bank of Thailand (BOT) is poised to maintain its current interest rate stance in the face of ongoing political instability, according to a recent Reuters poll. Economists anticipate that the central bank will keep rates unchanged at 2.50% on Wednesday and through the first quarter of 2025, as it seeks to strike a delicate balance between supporting economic growth and controlling inflation.
Despite inflation falling below the BOT’s target range of 1-3%, with July’s figure at just 0.83%, Governor Sethaput Suthiwartnarueput has stated that the current interest rate is appropriate. This stance comes in spite of repeated calls from the government to lower rates, highlighting the central bank’s commitment to maintaining monetary policy independence.
The political landscape in Thailand has been particularly tumultuous of late, with the dismissal of Prime Minister Srettha Thavisin and the subsequent election of Paetongtarn Shinawatra as the country’s youngest prime minister. These developments have added a layer of complexity to the BOT’s decision-making process, as it must now assess the potential economic impact of this political upheaval.
In the Reuters poll conducted from 8-16 August, 24 out of 27 economists predicted that the BOT would maintain its benchmark one-day repurchase rate at 2.50% on 21 August. Only three economists forecast a 25 basis point cut.
Khoon Goh, head of Asia research at ANZ, commented, “We are not anticipating any policy rate changes. A lot will depend on the growth outlook. If political calm prevails… the BOT is likely to keep its policy rate on hold through 2024, before modest rate cuts in mid-2025 when growth is likely to slow.”
However, Goh added a cautionary note, stating that “intensifying political risks in the coming weeks and disruptions in fiscal policy implementation would strengthen the case for a recalibration in monetary policy settings sooner rather than later.”
The weakness of the Thai baht, which has depreciated about 2% against the US dollar this year, suggests that any move by the BOT before the US Federal Reserve’s expected policy easing in September could potentially fuel inflation.
Eugene Tan, associate economist at Moody’s Analytics, explained, “We do not expect the BOT to ease aggressively or make a preemptive rate cut ahead of the US Federal Reserve. By easing along with the Fed, the BOT can avoid putting additional downward pressure on the baht.”
The median forecasts from the poll indicate that interest rates will remain steady at 2.50% through the first quarter of 2025, with a 25 basis-point cut to 2.25% expected in Q2. This represents a slight shift from the July survey, which had predicted the first cut would occur in the first three months of 2025.
A smaller subset of economists providing forecasts until the end of 2025 anticipate rates decreasing by 50 basis points to 2.00%.
However, several economists in the poll emphasised that the ongoing political upheaval could pose significant risks to this outlook, potentially necessitating earlier policy easing than currently anticipated.
Lavanya Venkateswaran, senior ASEAN economist at OCBC, cautioned, “The central bank really doesn’t have much reason to adjust its policy stance. However, given the situation, we will monitor risks to that call… especially if political uncertainty prolongs and the policy continuity that we expect does not materialise.”
