Thai central bank to hold rates until Q2 2025, political turmoil risks early cut

THE Bank of Thailand (BOT) will keep interest rates unchanged on Wednesday (Aug 21) and through Q1 2025 to balance growth with inflation control while assessing the impact of ongoing political instability on the economy, a Reuters poll found.

While inflation, at 0.83 per cent in July, remained below the BOT’s target range of 1 to 3 per cent, governor Sethaput Suthiwartnarueput said the current interest rate is appropriate and there is no need to cut despite the government’s repeated calls to lower it.

With growing political uncertainty following the dismissal of Thai Prime Minister Srettha Thavisin, the BOT – previously bickering with Srettha’s government over the scale of cash handouts to tackle high household debt – will remain in a wait-and-watch mode to assess the impact on the economy.

Thailand’s parliament elected Paetongtarn Shinawatra as its youngest prime minister on Aug 16, daughter of divisive political heavyweight Thaksin Shinawatra.

All but three of the 27 economists in the Aug 8 to 16 Reuters poll expected the BOT to keep its benchmark one-day repurchase rate unchanged at 2.5 per cent on Aug 21.

Three economists predicted a 25 basis point cut.

“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,” wrote Khoon Goh, head of Asia research at ANZ.

“However, 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.”

Still, a weak Thai baht, which is down about 2 per cent against the US dollar so far this year, suggests any move before the US Federal Reserve’s expected policy easing in September will likely be inflationary.

“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,” wrote Eugene Tan, associate economist at Moody’s Analytics.

Median forecasts showed interest rates will remain steady at 2.5 per cent through the first quarter of 2025 before a 25 basis-point cut to 2.25 per cent in Q2, whereas a July survey had predicted the first cut would occur in the first three months of 2025.

A much smaller sample of economists who provided forecasts until end 2025 expected rates to decrease by 50 basis points to 2 per cent.

However, a few economists in the poll said the ongoing political upheaval is likely to pose significant risks to that outlook, and that policy easing could occur sooner than anticipated.

“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,” said Lavanya Venkateswaran, senior Asean economist at OCBC.

Venkateswaran expects no change in rates until end-2025. REUTERS