Thai central bank to keep rates on hold until Q2 2025, political turmoil risks early cut

By Pranoy Krishna

BENGALURU (Reuters) – The Bank of Thailand (BOT) will keep interest rates unchanged on Wednesday until Q1 2025 to balance growth with controlling inflation while assessing the impact of ongoing political instability on the economy, a Reuters poll found.

While inflation, at 0.83% in July, remained below the BOT’s target range of 1%-3%, Governor Sethaput Suthiwartnarueput said the current interest rate was adequate and there was no need to cut it, despite calls repeated attempts by the government to reduce it.

With political uncertainty rising following the ouster of Thai Prime Minister Srettha Thavisin, the BOT – which previously sparred with Srettha’s government over the extent of cash handouts to tackle high household debt – will remain in a wait-and-see mode and monitoring to assess the impact on the economy.

Thailand’s parliament on Friday elected Paetongtarn Shinawatra as its youngest prime minister, the daughter of Thaksin Shinawatra.

All but three of the 27 economists in an Aug. 8-16 Reuters poll expected the BOT to keep its benchmark overnight repo rate unchanged at 2.50 percent on Aug. 21.

Three economists predicted a cut of 25 basis points.

“We do not anticipate any change in the monetary policy rate. Much will depend on growth prospects. If political calm prevails… the BOT is likely to keep its policy rate on hold until 2024, before modest rate cuts in mid-2025 when growth is likely to slow,” wrote Khoon Goh, the head of Asia research at ANZ.

“However, intensifying political risks in the coming weeks and disruptions in the implementation of fiscal policy would strengthen the case for a recalibration of monetary policy sooner rather than later.”

Still, a weak Thai baht, which has fallen about 2 percent against the U.S. dollar so far this year, suggests any move ahead of the U.S. Federal Reserve’s expected policy easing in September is likely to be inflationary.

“We do not expect the BOT to dry aggressively or make a pre-emptive rate cut ahead of the US Federal Reserve. By easing along with the Fed, the BOT can avoid putting further downward pressure on the baht,” wrote Eugene Tan, associate economist at Moody’s (NYSE: ) Analytics.

Median forecasts showed interest rates holding steady at 2.50% until the first quarter of 2025, before a 25 basis point cut to 2.25% in Q2, while a July survey predicted that the first reduction will take place in the first three months of 2025.

A much smaller sample of economists who provided forecasts through the end of 2025 expected rates to drop 50 basis points to 2.00 percent.

However, several economists in the survey said ongoing political unrest could pose significant risks to that outlook and that policy easing could come sooner than expected.

“The central bank really doesn’t have much reason to adjust its policy stance. However, given the situation, we will monitor the risks on this call…especially if political uncertainty lingers and the policy continuity we we are waiting for is not materializing,” said Lavanya Venkateswaran, senior ASEAN economist at OCBC.

Venkateswaran does not expect any rate changes until the end of 2025.