BY RAHUL TRIVEDI
BENGALURU — The Bank of Thailand will pause its easing cycle on Wednesday to preserve limited policy space amid ongoing trade uncertainty and renewed domestic political tensions, according to a Reuters poll of economists who expect a rate cut next quarter.
The decision to hold would come despite prices falling 0.57 percent in May, following a 0.22 percent decline in April, and economic growth slowing to 3.1 percent last quarter.
More than 60 percent of economists, 17 of 27, in the June 16-20 Reuters poll predicted the BOT would leave its benchmark one-day repurchase rate unchanged at 1.75 percent on June 25. Ten forecast a 25 basis point cut to 1.50 percent.
“Following back-to-back cuts in February and April, the case for further near-term easing has diminished,” said Lavanya Venkateswaran, senior Asean economist at OCBC bank.
“BOT can afford to wait until the impact of the previous rate cuts works itself through the system, while preserving its limited policy space. The onus is now on the government to step up with fiscal policies and trade negotiations to mitigate downside risks to growth,” she added.
Among those who provided a longer-term outlook on rates, 17 of 24 respondents expected the BOT to cut rates by a quarter point to 1.50 percent by end-September. Five predicted no change, while two expected rates to be half a point lower by then at 1.25 percent.
Looking further ahead, half of those polled, 12 of 24, expected the key rate to be 1.50 percent at year-end.
While trade talks with the US are underway, a 36 percent tariff on Thai goods announced in April, but put on hold for 90 days, is looming if no deal is reached before July 9.
Renewed domestic political uncertainty could also weigh on the central bank’s policy decision-making. The United Thai Nation party – the second-largest partner in the governing alliance – has called for Prime Minister Paetongtarn Shinawatra to step down after just 10 months in office.
“It’s really hard for the BOT right now because a lot of uncertainty is going on. It’s not just the trade but also the domestic political situation, so it’s better for them to wait a little bit,” said Poon Panichpibool, a markets strategist at Krung Thai Bank.
“If the situation gets worse then a 50 basis point rate cut will not be ruled out. I think that would be a better time to use monetary policy,” he added.
The Thai economy improved in April from March and the outlook remains in line with its downwardly revised forecast for this year with the impact of US tariffs to be seen in the second half, the central bank said on Friday.
