Citi expects BOT to further cut its policy rate by 0.25% to 1.75% after April. There is a possibility of another 0.25% rate cut in August if economic conditions remain weaker than expected. However, further rate cuts below 1.75% may be challenging, given the BoT’s concerns on Thailand’s household debt.
Nalin Chutchotitham, Thailand and Philippines Economist, Citi Thailand, reported that BOT’s 25bps policy rate cut to 2.0% cut on 26 February was a preemptive use of the BoT’s policy space to better cope with increasing downside risks to the economy. From Citi’s perspective, the cut could be intended to ensure against risks that inflation may miss the target for a second year in a row and could ease financial conditions without affecting long-term financial stability risks.
“We suspect another 25bps cut to 1.75% would be possible, but only after April, since the MPC still deemed that the latest cut is sufficient for future uncertainties. We tentatively pencil in another 25bps cut in August, with odds increasing if growth continues to slow below potential, additional materialization of trade policy risks, inflation surprises negatively and/or credit risks worsen. A1.75% policy rate could bring real policy rates closer to the floor of BOT’s neutral real policy rate estimate of 0.5-1.0%, in our view. With household debt to GDP now higher at just below 89% of GDP as of 4Q24, we see a higher bar to bring the policy rate below 1.75%, noting that household debt was <85% of GDP when the policy rate was last at 1.5% in 2015 and 2019.” Nalin concluded.
