Surprise policy rate cut expected
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Kasikorn Research Centre says the Bank of Thailand needs to slash its policy interest rate by 25 basis points when it meets on December 17 to give the sluggish economy a boost.
Charl Kengchon, KResearch managing director, said gross domestic product this quarter was growing more slowly than expected. He blamed the delays in the government’s budget disbursal for contributing to that.
Separately, TMB Analytics is convinced that the policy rate would be cut by 0.25 percentage point in this round. TMB Analytics noted that the slower-than-expected economic growth and downward inflation paves way for relaxation in the monetary policy. Together with fiscal boosts, this should help boost the economy.
HSBC also expects a non-consensus 25-basis pionts rate cut next week. Its economist Nalin Chutchotitham noted that Thailand's economy still faces key challenges like possible political change, fiscal pressure, household debt, adverse demographics and the need for a new economic growth model.
KResearch, a unit of Kasikornbank, now expects GDP this year to grow by only 1.2 per cent, down from its 1.6-per-cent forecast in October.
Charl said the weak fourth quarter would influence growth going into 2015, and he doubted the 4-per-cent growth target next year was achievable.
He based that belief on the fragile global economic recovery and the lower competitiveness of Thai agricultural products compared with neighbouring countries.
“Looking ahead, Thailand continues facing downsides from the global economy, which is putting pressure on the exports,” he said. “Therefore, the growth of the Thai economy in 2015 is expected to rely on domestic consumption.
“To help fuel domestic consumption, the central bank should take action and relax the monetary policy and cut the interest rate amid the low inflation, which is mainly due to the low price of fuel.”
If there were a rate cut of 25 basis points, the policy rate would be 1.75 per cent – a figure Charl believes should remain throughout 2015.
But he warned that 2015 was expected to see an upward trend in interest rates globally based on the expectation that the United States would increase its policy rate midyear.
He also said the BOT should have measures in place to deal with capital-flow volatility should it cut the rate. Central bank bonds are a tool it could use to maintain healthy liquidity by minimising outflows.
Kevalin Wangpichayasuk, KResearch assistant managing director, predicted that the crude-oil price would remain low throughout next year because of the tussle between the Organisation of the Petroleum Exporting Countries (Opec) and the US shale-oil industry.
The growth of US shale-oil was influencing global financial markets as well, she said.
Dubai crude oil in 2015 is predicted to stay at US$70 per barrel. Kevalin said the low price benefited net oil importers like Thailand, which was ranked as the 13th-biggest net oil importer in the world.
She said transport, fisheries and mining were the three industries that gained most from the low price, while commodities such as rubber and agricultural products would be affected negatively.
