Central bank seen resisting rate-cut pressure
The Bank of Thailand (BoT) will probably keep its benchmark rate steady at more than a decade-high on Wednesday, resisting political pressure for a cut as the monetary authority is wary of lowering borrowing costs too soon.
The central bank will leave its one-day repurchase rate unchanged at 2.50%, a level last seen in 2013, for the second straight meeting, according to all 24 economists surveyed by Bloomberg. That will be in line with the stance of policymakers, who see monetary conditions appropriate to support economic growth as well as manage inflation.
Politicians including Prime Minister and Finance Minister Srettha Thavisin have openly called for lower borrowing costs by at least 25 basis points to boost consumption and growth in the economy, after months of negative inflation readings. The Ministry of Finance estimates Southeast Asia’s second-largest economy likely grew 1.8% last year, sharply lower than the World Bank’s projection for 2.5% expansion.
The BoT, which has charted its own course on rates by tightening later than peers and sticking to small and measured moves before pausing in November, has continued to push back against calls for lower rates, saying easy monetary policy cannot fix structural economic problems. Even globally, central banks from the United States to Australia have signalled a preference to wait instead of rushing to ease.
Unlike Australia, where the central bank has not ruled out hikes to tame inflation durably, Thailand has seen four straight months of negative inflation — which Mr Srettha’s government has said is a sure sign of waning demand in the economy. The BoT has dismissed that interpretation, arguing instead that declining consumer prices are an effect of state subsidies and not falling consumption.
“The inflation prints have been negative, mainly because of government cost of living measures,” said Lavanya Venkateswaran, senior Asean economist at Oversea-Chinese Banking Corp Ltd, who will be keenly watching how the rate panel votes and expects the BoT to stand pat on Wednesday. “There is limited activity data for 2024 to indicate that growth momentum is slowing enough to justify lower rates.”
Gloomy outlook
The central bank will likely lower its estimate for gross domestic product growth and inflation, with manufacturing data showing activity contracted for 15 months in a row on weak global demand.
The Ministry of Finance ministry’s estimate of 1.8% growth last year is lower than the central bank’s latest forecast of 2.4%. The official GDP data will be released by the National Economic and Social Development Council on Feb 19.
Foreign funds have dumped about US$1.08 billion of Thai stocks and bonds so far this year on top of net sales of $5.1 billion in 2023. The outflows are concerning as it may signal that foreign investors are viewing the long-term prospects of Thai assets as no longer attractive, BoT assistant governor Piti Disyatat said late last month.
The baht has gone from the best-performing Asian currency in the fourth quarter last year to among the biggest losers this year. While the baht remains highly volatile, its moves have so far been within bounds and with reasons, Mr Piti said.
Policy signal
Market participants will be awaiting clues as to the policy path after Mr Piti’s latest remarks that monetary policymakers “are not wedded to a fixed stance” and that they are ready to adjust their “neutral” stance if incoming data and the outlook for growth, inflation and financial conditions warrant it.
A number of economists including CIMB, HSBC Holdings Plc and Standard Chartered Plc, have flagged rate cut risk this year amid falling price pressure, and uncertainty about the government’s flagship cash handout project, which is now delayed from its May schedule.
“We think the BoT will only cut rates if the digital wallet scheme is shelved,” HSBC’s economist Aris Dacanay said in his report last week. “Easing fiscal and monetary policy simultaneously may be too much for an economy that’s not necessarily stuck in a ditch.”
Source – Bangkok News
