Thai Central Bank to Maintain Interest Rates Until Q2 2025 Amid Political Turmoil Risks of Early Cut

By Pranoy Krishna

BENGALURU (Reuters) – The Bank of Thailand (BOT) is expected to maintain its interest rates at their current levels during Wednesday’s meeting and throughout the first quarter of 2025. This decision aims to balance economic growth with inflation management while evaluating the effects of ongoing political instability on the economy, according to a Reuters poll.

Inflation in Thailand was recorded at 0.83% in July, falling short of the BOT’s target range of 1% to 3%. Governor Sethaput Suthiwartnarueput emphasized that the existing interest rate is suitable, dismissing government calls for a rate reduction.

The political landscape has become increasingly uncertain following the dismissal of Prime Minister Srettha Thavisin. The BOT, which had previously been at odds with Srettha’s administration regarding cash handouts to address high household debt, is now adopting a cautious stance to observe the economic implications of this political turmoil.

Recently, Thailand’s parliament appointed Paetongtarn Shinawatra, the daughter of influential political figure Thaksin Shinawatra, as the youngest prime minister.

In the Reuters poll conducted from August 8-16, nearly all of the 27 economists surveyed predicted that the BOT would maintain its benchmark one-day repurchase rate at 2.50% during its meeting on August 21, while three economists forecasted a 25 basis point reduction.

According to Khoon Goh, head of Asia research at ANZ, “We do not anticipate any adjustments to the policy rate. Much will depend on the growth outlook. If political stability returns, it’s likely the BOT will keep rates unchanged throughout 2024, with modest cuts anticipated in mid-2025 as growth slows.”

He cautioned, however, that escalating political risks in the coming weeks and disruptions in fiscal policy could lead to an earlier adjustment in monetary policy.

The Thai baht has witnessed a 2% decline against the U.S. dollar this year, indicating that any BOT action prior to the anticipated easing of U.S. Federal Reserve policies could exacerbate inflation.

Eugene Tan, an economist at Moody’s Analytics, also noted, "We do not foresee the BOT making aggressive cuts or preemptively lowering rates before the U.S. Federal Reserve. Coordinating easing with the Fed could prevent additional depreciation of the baht."

Current forecasts suggest that interest rates will remain stable at 2.50% through the first quarter of 2025, with a potential 25 basis-point cut to 2.25% in the second quarter. A prior survey had predicted that the first cut would occur within the initial three months of 2025.

A smaller set of economists, providing forecasts until the end of 2025, expect rates to decrease by 50 basis points to 2.00%. Nevertheless, some analysts indicated that ongoing political turmoil could significantly influence these projections, suggesting that policy easing might happen sooner than expected.

Lavanya Venkateswaran, senior ASEAN economist at OCBC, remarked, "The central bank has little reason to alter its policy stance. However, we will closely monitor risks, especially if political uncertainty extends and the expected policy continuity is not realized." Venkateswaran anticipates no changes in rates until the end of 2025.