BOT is likely to stay on hold in January

The bank expected a rate cut at the previous meeting on December 17, but the MPC maintained the rate at 2 per cent, citing sufficient accommodation, and added that fiscal policy should be the main driver for growth. 

"Nevertheless, we still expect a further 25 basis points cut to 1.75 per cent by the end of this quarter," said Nalin Chutchotitham, economist of HSBC Bangkok Branch.

In a research note, she explained that high-frequency data on private spending and loan growth still point to a weak recovery, while the fiscal budget and stimulus plans have not been aggressive. Similarly, it is likely that less than 0.5 per cent of GDP will be spent on the infrastructure investment master plan this year. And although cheaper oil is positive for consumption, there are downside risks on exports of goods and services to commodity-exporting trade partners. Moreover, the BOT

is still seeing negative output gaps through the third quarter of 2016 in its own forecasts. 

"Thus, we think that the BOT will eventually have to provide an extra “cushion” to help sustain the recovery despite its own doubts on the effectiveness. While limited, lower borrowing costs should help to shore up private sentiment, and the BOT has room to ease with little upside risk to inflation for the time being," she said.