• The Bank of Thailand (BoT) cut the Overnight Repurchase Rate by 25 basis points (bps), bringing it to 2.25%, surprising both market and house expectations.
  • The Monetary Policy Committee (MPC) voted 5-2 in favour of this policy rate cut, marking the first cut since May 2020.
  • BoT statement: It expected inflation to gradually return towards the target range by the end of 2024, stating that "the committee deems that a neutral stance of the policy rate remains appropriate with the economic growth and inflation outlook." The gradual pace of inflation moving toward the target has led the BoT to recalibrate its monetary policy strategy. It also highlighted the weak performance of the economy, which has been aggravated by high debt servicing costs for borrowers. The lower rate may alleviate financial pressure on businesses facing rising expenses, particularly due to the recent strengthening of the local currency.
• Thai economy is projected to continue expanding, propelled by higher consumption and export recovery
  • The BoT expects the domestic economy to be driven by increased domestic demand and private consumption from the USD 14.0b "digital wallet" stimulus scheme, which will benefit 45m people. This initiative, combined with a potential recovery in exports and continued support from tourism, is expected to help GDP growth reach the government's revised target of 2.7% for 2024 from the initial target of 2.6%.
• The BoT expects headline inflation to increase at gradual pace, amid remain below target range
  • It revised the forecast for headline inflation to 0.5% for 2024, down from 0.6%, and is projected to be 1.2% for 2025. In September, headline inflation rose to 0.61%, up from 0.35% in August, but it remains below the target range of 1.0% to 3.0%. This increase was mainly driven by higher prices for certain vegetables and diesel. Unpredictable weather conditions are expected to be the primary factor behind the modest rise in raw food inflation.
• We expect the BoT to continue with gradual monetary easing, supporting the bullish growth outlook
  • To stay competitive, BoT's monetary policy is expected to align with global trends, particularly among regional peers and advanced economies that are increasingly opting to ease rates to support growth. With inflation likely remaining below target, future rate cut will help stimulate demand and push prices upward. Additionally, such cuts would signal effective coordination between fiscal and monetary policies, despite recent political changes.
  • USDTHB year-end forecast (34.9; 2023: 34.61): We maintain our forecast despite the Baht's stronger appreciation in September. Escalating geopolitical tensions in the Middle East could weaken the baht, following the stronger dollar as haven currency. If another 25 bps rate cut occurs, Thailand may gain economic momentum through domestic-led recovery, allowing it to catch up with regional peers. BoT 5th MPC Decision Surprise 25 bps rate cut aims to reignite economic growth

Source: Kenanga Research - 17 Oct 2024