BOT expected to keep rate unchange
The Bank of Thailand is expected to maintain the policy rate at 1.5 per cent at the upcoming meeting on Wednesday, said economists.
Though staying pat in this round, the BOT's Monetary Policy Committee is widely expected to lower the rate again in the fourth quarter, due to sluggish economic growth and low inflation.
Faraz Syed, associate economist of Moody's Analytics, said that after cutting rates by 50 basis points in the opening half of the year, the bank has adopted a wait-and-see approach to determine if the cuts are working.
"Below-trend growth and weak headline inflation will likely lead to a further 25-basis point cut in the policy rate by the end of 2015," he said.
Nalin Chutchotitham, Thailand economist of HSBC, and TMB Analytics also expected a rate cut in the fourth quarter, saying the government's new stimulus package have reduced the urgency of policy action.
TMB Bank's economic team noted that there is no pressure for a rate cut in this round, after the junta unveiled new economic stimulus measures. The bank noted that the Bt136 billion injection to villages and small job-creation projects should boost the 2015 economic growth rate by 0.3 percentage point. This is on top of additional assistance to SMEs worth Bt260 billion.
"The Bank of Thailand will likely want to wait for more data as many downside risks remain; for example, impact from the Ratchaprasong bombing, Asian economic slowdown, and EU review of the Thai fishery industry," Nalin noted.
Gundy Cahyadi, a DBS economist, noted that as consumer price index (CPI) is expected to average minus 0.6 per cent this year, this is the first time that it will be in the negative since 2009. Most of it is due to direct and indirect impact from low oil prices, as evident in how persistently low inflation is in the transport and food components of the CPI basket.
"But interest rates are already near historical lows. Another 25 basis points cut would put the policy rate at 1.25 per cent. The last time rates were this low was in the depths of the global financial crisis of 2008-2010. Compared to then, even if below 3 per cent, today’s GDP growth looks robust," he sid.
He noted that given the ongoing household deleveraging, further rate cuts are unlikely to have much of an impact on domestic demand. Easing on the currency front may make sense given the relative strength of the baht.
On the foreign exchange front, there is no need to lower the policy rate as the baht has weakened sharply against the US dollar, added TMB Analytics. Compared to early August when the MPC convened for the last time, the baht has weakened by over 2.5 per cent to around $/Bt36. It has depreciated by 10 per cent from the beginning of this year.
The central bank has further eased restrictions on outward investments by local residents. Individuals with liquid assets of at least Bt100 million and companies with at least Bt1 billion worth of assets will be allowed to invest up to US$5 million overseas per year, starting from 2016. These followed the moves earlier this year in April, when the BOT relaxed rules on overseas property purchases as well as foreign currency deposit limits.
