BENGALURU: The Bank of Thailand will pause its easing cycle on Wednesday (Jun 25) 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 per cent in May, following a 0.22 per cent decline in April, and economic growth slowing to 3.1 per cent last quarter.
More than 60 per cent of economists, 17 of 27, in the Jun 16-20 Reuters poll predicted the BOT would leave its benchmark one-day repurchase rate unchanged at 1.75 per cent on June 25. Ten forecast a 25 basis point cut to 1.50 per cent.
“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 per cent by end-September. Five predicted no change, while two expected rates to be half a point lower by then at 1.25 per cent.
Looking further ahead, half of those polled, 12 of 24, expected the key rate to be 1.50 per cent at year-end.
While trade talks with the US are underway, a 36 per cent tariff on Thai goods announced in April, but put on hold for 90 days, is looming if no deal is reached before Jul 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.
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