Thailand Keeps Key Rate Steady as New Government Takes Shape

Suttinee Yuvejwattana
·3-min read

(Bloomberg) -- Thailand’s central bank left its benchmark interest rate unchanged for a fifth straight meeting, as policymakers await clarity around the new government’s agenda and gauge risks to the economy from deteriorating credit quality.

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The Bank of Thailand voted 6-1 to maintain the one day repurchase rate steady at about a decade-high 2.50% at Wednesday’s meeting, as predicted by all but one of the 24 economists surveyed by Bloomberg. One member of the Monetary Policy Committee called for a quarter-point cut, in a repeat of the June vote.

The decision to keep borrowing costs at the highest level since 2013 comes as Prime Minister Paetongtarn Shinawatra picks her team and formulate policies including reviewing a $14 billion cash handout planned by her predecessor Srettha Thavisin.

While the BOT had resisted calls from Srettha to cut rates, its emphasis Wednesday on worsening credit conditions and sluggish investment suggests the central bank may be more open to supporting the economy should it weaken.

Policymakers flagged in the statement that they’re monitoring the “deterioration in credit quality” that could impact financial conditions and the economy. “The Committee deems that it is crucial to closely monitor the impacts of deterioration in credit quality on borrowing costs and overall credit growth, which could disturb economic activities.”

The consensus by Thai MPC was that the policy rate remains consistent with the outlook on growth and inflation. Neighboring Indonesia also maintained the benchmark rate unchanged although it signaled a scope to shift to easing next quarter.

“We will need to assess in the next meeting whether there’s something that will affect the economic outlook and warrant any policy action,” BOT Assistant Governor Piti Disyatat told a briefing in Bangkok. “If it’s still in line with our forecast, our stance will remain neutral.”

While Southeast Asia’s second-largest economy grew at the fastest pace in five quarters in the April-June period, it continues to lag the expansion of its neighbors, hobbled by massive household debt and a manufacturing sector hurting from cheap imports mostly from China.

Pichai Chunhavajira, who continues as caretaker finance minister while Paetongtarn finalizes her team, described the $500 billion economy as “near crisis.” Local media Thansettakij reported on Wednesday that the cabinet is being finalized and that the new government will hand out cash to 14 million low-income Thais.

The monetary authority has kept the key rate steady since the fourth quarter of 2023 even as inflation has stayed below the BOT’s 1%-3% target.

What Bloomberg Economics Says...

Our read of the balance of risks suggests the BOT won’t cut rates this year — high household debt appears to stand in the way. The BOT indicated that the current rate remains supportive of growth and price stability — suggesting it’s at the neutral level.

—Tamara Henderson, Asean economist

For the full note, click here

Piti expects economic growth to improve in the second half of the year, forecasting gross domestic product to be closer to 3% in the third quarter and to 4% in the fourth quarter.

The actions of the Federal Reserve that’s expected to pivot to easing as early as next month hardly matters to the BOT, Piti said, as it focuses on domestic conditions.

Emerging currencies including the baht have appreciated, further easing imported price pressures and giving policymakers in many places more leeway to support the economy. The Thai currency fell almost 0.4% against the dollar at 3:24 p.m. local time.

--With assistance from Pathom Sangwongwanich, Anuchit Nguyen, Janine Phakdeetham and Patpicha Tanakasempipat.

(Updates with central bank’s statement and official’s remarks.)

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