Background on the Bank of Thailand’s Current Monetary Policy
The Bank of Thailand (BoT) has kept the policy interest rate steady at 2.5% since the September 27, 2023, meeting. Despite widespread calls for rate cuts from businesses and politicians, there is little expectation that the BoT will alter the rate during its October 16 meeting.
Why the Interest Rate Remains Unchanged
The decision to hold rates at 2.5% is largely driven by the Bank of Thailand’s strategy to manage inflation. Originally, the BoT planned to inject nearly 600 billion Baht into the economy as part of a nationwide cash disbursement scheme. However, due to changes in the disbursement conditions, only 145 billion Baht has been distributed, resulting in lower-than-expected liquidity. This has contributed to a stable inflation environment.
The 10,000 Baht Per Person Scheme and Its Impact
The 10,000 Baht disbursement scheme was initially designed to boost the economy, targeting every Thai citizen above the age of 16. However, after modifications to the scheme, only around 14.5 million individuals received the cash. Despite these changes, inflation has remained subdued, with a headline consumer price index (CPI) of just 0.61% YoY in September 2024.
Inflation Forecast for 2024
Economists project that Thailand’s inflation will remain well below the BoT’s target range of 1-3%. The anticipated headline inflation for 2024 is expected to be only 0.5%, largely due to slow domestic demand and a controlled disbursement of cash.
Inflation Projections for 2025
Looking ahead to 2025, experts predict a rise in inflation to about 1.5%, driven by improved demand and sustained export growth in the services sector.
BoT’s Policy Rate and Pressure from Various Sectors
Despite the current inflation outlook, there has been mounting pressure on the Bank of Thailand to cut interest rates. Politicians and businesses have been pushing for rate reductions, particularly as businesses continue to feel the strain of high borrowing costs.
Business and Public Calls for Rate Cuts
A survey by UOB indicated that 47% of businesses and individuals surveyed are in favor of rate cuts. Many are also seeking reductions in transaction fees, which they believe would alleviate financial pressures.
BoT’s Stance on Interest Rates
Although calls for rate reductions are growing louder, economists, including Enrico Tanuwidjaja from UOB Group, maintain that the BoT is unlikely to make a move on interest rates until 2025. With the economy showing signs of improvement, it is expected that the BoT will maintain its rate at 2.5% throughout 2024.
The BoT’s Economic Projections
According to BoT officials, macroeconomic projections have not significantly changed since June 2024. This indicates that the central bank may keep the interest rate unchanged until at least 2025. The Bank of Thailand will provide an updated economic outlook during the upcoming MPC meeting.