By Reuters and published by CNA
THAILAND’S central bank unexpectedly cut its key interest rate at a policy review today (Oct. 16), a move long called for by the government as needed to revive a sluggish economy with inflation below target.
The central bank’s move follows five consecutive meetings where it held rates steady and months of pressure from the government for monetary easing that would align with its fiscal stimulus.
The Bank of Thailand’s (BOT) monetary policy committee voted 5 to 2 to reduce the one-day repurchase rate by 25 basis points to 2.25 percent, after the rate had been at a decade-high of 2.5 percent since September 2023.
The benchmark index rose 1.4 percent after the surprise cut.
The cut would help ease the debt burden without hindering the process of reducing the household debt-to-GDP ratio, the central bank said in a statement.
Only four of 28 economists in a Reuters poll had predicted a quarter-point cut this week. Twenty-four economists had expected no policy change.
“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 in December.
The previous change in policy was a 25 basis point rate rise in September last year.
The BOT raised its 2024 economic growth forecast to 2.7 percent from 2.6 percent earlier, and predicted 2.9 percent growth in 2025, down from the 3 percent previously projected.
The World Bank has forecast the economy will grow 2.4 percent this year and 3 percent next year.
Southeast Asia’s second-largest economy has lagged regional peers as it faces high household debt and borrowing costs as well as weak exports. As of June, Thailand had a 89.6 percent household-to-GDP ratio, with household debt at 16.3 trillion baht ($488.90 billion), among the highest levels in Asia.
The BOT cut its forecast for 2024 headline inflation to 0.5 percent from 0.6 percent, which is below the target range of 1 percent to 3 percent.
The next rate review is on Dec. 18.
Regionally the Philippine central bank too reduced its key interest rate by 25 basis points today for a second meeting, and left the door open to further cuts with medium-term inflation expected to stay within its 2 percent-4 per cent target range.
However the Bank of Indonesia kept rates unchanged as expected.
The cut by the Philippine central bank, which was unanimously predicted by all 23 economists in a Reuters poll, took the target reverse repurchase rate to 6 percent, the lowest since February 2023.
“The Monetary Board’s decision is based on its assessment that price pressures remain manageable,” Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona told a press conference.
The Philippine peso was largely unchanged at 57.73 to the dollar after the BSP’s rate cut.
The BSP lowered its baseline inflation forecast for 2024 to 3.1 percent from 3.4 percent, but raised its projections for 2025 and 2026 to 3.2 percent and 3.4 percent from 3.1 percent and 3.2 per cent, respectively, because of potential adjustments in electricity rates and wages.
Even so, Remolona said it was possible the BSP would enact a third quarter-point rate cut at its last meeting this year in December, and a cumulative 100 bps in cuts next year.
“We continue to update our calculations in the face of new data and for now at least the easing that we’ve been doing, and even the easing that we might do, we think that will still keep the inflation rate within the target range,” Remolona said.
“We prefer to take baby steps in terms of adjusting the policy rate, meaning 25 basis points at a time, but not necessarily every quarter or not necessarily every meeting,” Remolona said.
($1 = 33.3400 baht)
CAPTION:
A bank employee gathers Thai baht notes at a Kasikornbank in Bangkok on January 26, 2023. Photo: Reuters/Athit Perawongmetha and published by CNA
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