BANGKOK :Thailand’s central bank unexpectedly cut its key interest rate on Wednesday, saying the move brought rates a “neutral” level consistent with the economy’s growth potential and downplaying the impact of government calls for policy easing on its decision.
The 25-basis-point reduction was the first rate cut since May 2020, following five consecutive meetings where it held rates steady and months of pressure from the government, looking to the central bank for help with reviving sluggish growth.
The benchmark stock index rose 1.6 per cent with the baht dropping 0.36 per cent after the decision that only four of 28 economists polled by Reuters had anticipated.
“The lower policy rate would not impede debt deleveraging given the expected slowdown in loan growth and would remain neutral and consistent with economic potential,” the Bank of Thailand (BOT) said in a statement.
The BOT’s monetary policy committee voted 5 to 2 to bring the one-day repurchase rate to 2.25 per cent from a decade-high of 2.50 per cent, where it has been since September 2023, when the bank hiked its benchmark by 25 basis points.
“It’s not an easing cycle… just recalibrating the policy interest rate,” assistant governor Sakkapop Panyanukul told reporters. “It was not from political pressure,” he said.
Deputy Finance Minister Paopoom Rojanasakul told reporters on Wednesday the rate cut would help boost growth and showed that fiscal and monetary policies were being coordinated.
At their previous meeting in August only one policymaker backed a rate cut while the rest voted to keep the rates steady.
“The mounting headwinds swayed the other four members,” said Kobsidthi Silpachai, head of capital markets research of Kasikornbank.
Floods in parts of the country, competition with cheap Chinese imports and factory closures were all weighing on the economy, he said.
“The case for cuts arguably only grew even more over the past few months, in view of the rapid appreciation of the baht,” said Miguel Chanco, chief emerging Asia economist at Pantheon Macroeconomic, who predicts another cut at the next rate meeting on Dec. 18.
Capital Economics also expects a rate cut in December and sees the policy rate at 1.5 per cent at the end of next year.
On Wednesday, the Philippines also cut rates, while Indonesia kept rates unchanged.
The central bank on Wednesday raised its 2024 economic growth forecast to 2.7 per cent from 2.6 per cent earlier, and predicted 2.9 per cent growth in 2025, down from the 3 per cent previously projected.
Southeast Asia’s second-largest economy has lagged its regional peers, saddled by high household debt and borrowing costs, and weak exports.
The BOT also cut its forecast for 2024 headline inflation to 0.5 per cent from 0.6 per cent, which is below the target range of 1 per cent to 3 per cent.
The central bank and Finance Ministry will meet again at the end of October to discuss the inflation target.
($1 = 33.34 baht)
