MPC expected to hold rate at 2.5% despite economic debates, external pressure

The MPC, scheduled to hold its first meeting of 2024 on Wednesday, has been urged by government leaders to lower its policy rate from 2.5% per annum.

Prime Minister Srettha Thavisin, who also holds the Finance portfolio, and his Cabinet argue that there is no justification for the MPC retaining the 2.5% interest rate as inflation has been on a downward slide over several months.

However, the Bank of Thailand (BOT) has argued that inflation was still high, but distorted by the government’s energy subsidies.

Kirida Bhaopichitr, director of TDRI Economic Intelligence Service (EIS), said she believes the MPC will maintain the current interest rate because the Thai economy still has room to grow.

Explaining that the economy was only facing problems in some, not all sectors, she said the TDRI expects the MPC to reduce the policy rate by 25 basis points or 0.25% in the latter half of the year to boost investor sentiment.

Amonthep Chawla, executive vice president and chief of CIMB Thai Bank’s Research Office and head of Wealth Research and Advisory, said he believes the MPC will retain the 2.5% rate as it wants to continue monitoring the country’s economic situation.

Amonthep said the central bank believes the Thai economy can still be hit by external factors like geopolitical conflicts and rising global oil prices.

He added that the MPC may lower its policy rate if the Thai economy slows down during the second half of this year.

Pipat Luengnaruemitchai, chief economist and deputy head of the Research Group at Kiatnakin Phatra Securities, said he expects the MPC to decide to retain its 2.5% rate in the upcoming meeting and possibly throughout the year.

However, he said, if the government failed to stimulate the economy with its digital wallet scheme, the MPC may consider lowering the rate provided it does not affect inflation and financial stability.

Burin Adulwattana, chief economist of Kasikornbank, said the MPC would definitely not lower the 2.5% rate when it meets on Wednesday because the central bank needs clarity on several aspects.

He said the BOT would have to wait and see if the government can implement its digital wallet scheme and wait to see what decision the US Federal Reserve makes on its fiscal policies first.

Narit Sathapoldecha, head of the TTB Analytics Centre, also believes that the MPC would vote to retain its 2.5% policy rate. He said the MPC will possibly be concerned about economic uncertainties in many countries, especially Thailand, adding that indicators show that the Thai economy is not in good shape.