Bangkok: CIMB Thai Bank (CIMBT) forecasts a potential policy interest rate reduction by the Monetary Policy Committee (MPC) at its upcoming meeting on February 26. Mr. Amorntep Chawala, Assistant Managing Director and Head of Research at CIMBT, suggests a 0.25% cut to 2.00% is likely.
According to Thai News Agency, while some agencies predict the MPC might maintain the current rate, there is no immediate signal from the Bank of Thailand (BOT) indicating a necessity to cut rates. The emphasis remains on preserving policy flexibility for future economic challenges. However, Mr. Amorntep believes that revisiting the economic landscape since the last meeting could justify a rate reduction. Should the cut not occur in February, market analysts anticipate a possible reduction in April. An earlier cut, he argues, could instill greater confidence and positively impact the economy.
The anticipated interest rate cut might not yield immediate economic effects within the first couple of months. Although commercial banks are expected to adjust lending and deposit rates promptly, the broader economic stimulus, such as increased investments, job creation, and consumption, may take 6-12 months to materialize. The impact is expected to be more pronounced towards the year's end when economic pressures might intensify.
Mr. Amorntep emphasizes the importance of monetary policy in preventing economic decline or supporting recovery. Delaying action could risk prolonged low economic growth. He notes that monetary policy should work in tandem with fiscal strategies addressing inequality and structural issues to boost Thailand's long-term economic potential sustainably.
Thailand faces several downside risks, including lower-than-expected economic expansion and inflation risks. The GDP growth was just 2.5% in 2024, with weak purchasing power and limited tourist spending. Construction and housing loans remain constrained, while external factors like the trade war and global crude oil prices could influence economic conditions.
The Thai economy could benefit from a weaker baht against the US dollar to enhance export competitiveness. An interest rate reduction might decrease the baht's appeal, particularly in the bond market, thereby aiding currency depreciation.
Mr. Amorntep notes that the growth of loans may start slowly despite a rate cut due to persistent credit risks and economic challenges. Banks are likely to remain cautious about lending, especially for housing and SME loans. Fiscal measures, such as construction and employment initiatives, are needed to bolster purchasing power, as financial measures alone cannot resolve all economic issues.
Concerns about interest rate policy alignment with the US Federal Reserve (Fed) are addressed, with Mr. Amorntep asserting that the BOT can independently tailor monetary policy to domestic needs, though capital movement impacts must be considered. The Fed is expected to keep rates steady in March, with possible cuts in June and December.
The MPC is projected to reduce the interest rate to 1.50% by year's end, with five meetings remaining to assess economic conditions and make necessary adjustments.