10-4-2024 (BANGKOK) The Bank of Thailand (BOT) decided to keep its key interest rate unchanged for the third consecutive meeting on Wednesday, defying persistent calls from the government to lower borrowing costs in a bid to stimulate the country’s economy, Southeast Asia’s second-largest.
The BOT’s monetary policy committee voted 5-2 to maintain the one-day repurchase rate at 2.50 per cent, marking the highest level in over a decade. The rate had been increased by 200 basis points since August 2022 to counter inflationary pressures.
In a statement, the BOT stated, “The majority of the committee believes that the current policy interest rate is appropriate for preserving macro-financial stability, and that the effectiveness of monetary policy in addressing structural constraints is limited.”
Out of 26 economists surveyed by Reuters, 16 anticipated no change in the interest rate, while the remaining 10 had predicted a quarter-point reduction.
Assistant Governor Piti Disyatat, speaking at a briefing, described the current key rate as neutral and not detrimental to growth. However, he acknowledged that adjustments could be made if the economic outlook evolves.
The BOT revised its GDP growth forecast for 2024 downwards to 2.6 per cent from the previous range of 2.5 per cent to 3.0 per cent. In contrast, the government anticipates a 4 per cent expansion this year.
The decision coincided with the government securing funding for its signature $13.8 billion handout programme, aimed at propelling growth to 5 per cent next year.
Prime Minister Srettha Thavisin has persistently urged the central bank to reduce rates, citing concerns that the current level is detrimental to businesses and investor sentiment, characterising the economy as being in “crisis”.
Miguel Chanco, chief emerging Asia economist at Pantheon Macroeconomics, noted that the central bank’s resolve to maintain independence remained steadfast, despite the government’s pleas for rate cuts.
Chanco remarked, “We’ve been anticipating the BOT to uphold rates higher than necessary for a while longer, as a demonstration of its institutional independence amidst the government’s explicit calls for immediate cuts.”
Market expectations point towards two rate reductions for the remainder of the year, with the first anticipated at the next rate review scheduled for June 12.
BOT Governor Sethaput Suthiwartnarueput emphasised last month the need to ensure that the policy is conducive to long-term growth, given the low risk of deflation.
Analysts argue that the case for a rate cut to support economic recovery is gaining momentum, particularly as inflation continues to trend downwards.
Gareth Leather of Capital Economics remarked, “The weakened economy will eventually compel the central bank to ease policy, most likely at its next meeting in June.”
Headline consumer inflation has remained below the central bank’s target range of 1 per cent to 3 per cent for almost a year, primarily due to energy subsidies.
The BOT expects headline inflation to reach 0.6 per cent this year, down from the previous forecast of nearly 1 per cent in February.
Overall, the BOT anticipates improvements in tourism and public expenditure throughout 2024, with exports expected to recover gradually in the latter half of the year. However, the projection for 2024 export growth has been revised downwards to 2 per cent from the 2.6 per cent forecasted in February.
The BOT stated, “Structural impediments, particularly declining competitiveness in the exports and manufacturing sectors, as well as global excess capacity, constrain the benefits of the global economic recovery on the Thai economy.”
