BANGKOK: The Bank of Thailand may be convinced to wield its limited policy ammunition and deliver another rate cut after the governor warned that the economy faces a "storm” from the global trade war.
The BOT’s Monetary Policy Committee is expected to cut the benchmark one-day repurchase rate by a quarter-point to 1.75% for the second straight meeting this year and the third time since October, according to 17 of 21 economists in a Bloomberg News survey. The rest see the BOT keeping the key rate unchanged.
"It’s quite clear that the storm is coming from the trade war,” Bank of Thailand Governor Sethaput Suthiwartnarueput said in a speech on Tuesday (April 29).
"The need to focus on stability is high.”
The Thai economy has suffered twin blows, first from a deadly 7.7-magnitude earthquake in March, while confidence has been shaken by the prospect of 36% tariffs for exports to the US.
Prime Minister Paetongtarn Shinawatra is trying to secure negotiations with US President Donald Trump’s administration and mulling measures to alleviate the local impact.
In a sign of growing pessimism, Moody’s Ratings changed Thailand’s credit rating outlook to negative from stable late Tuesday, citing risks that economic and fiscal strength will weaken further. It affirmed the sovereign rating at an investment-grade Baa1.
The tariff shock "exacerbates Thailand’s already sluggish economic recovery post-pandemic” and risks aggravating the downward trend in its potential growth, Moody’s said in a statement.
"With downside growth risks rising and the economy set to undershoot the BOT’s 2.5% growth projection for 2025, the case for a stronger policy response has strengthened,” said Krystal Tan, an economist at Australia & New Zealand Banking Group, who forecast the terminal rate at 1.25% by year-end.
"It is a close call, but even if the BOT opts to hold and await more clarity on the evolution and impact of US tariff policies, its policy messaging is likely to be dovish.”
Here’s what to watch out for from the statement expected at 2pm in Bangkok:
Policy Guidance
Thai policymakers surprised the market with their two previous rate cuts, even as they maintain that they are not embarking on an all-out easing cycle. The BOT said after the February cut that the bar will be high for any additional easing since it has limited policy space with the key rate at just 2%.
In a briefing on April 17, Assistant Governor Sakkapop Panyanukul didn’t give clear signals either, saying rate-setters will weigh the impact of US tariffs on the country’s growth, inflation and trade when reviewing monetary policy.
The International Monetary Fund said Asian central banks have scope to lower borrowing costs to cushion their economies from the trade war, citing low and manageable inflation. The Philippines and Singapore eased monetary policy earlier this month, while analysts have started to pencil in rate cuts for Malaysia.
"The outcome of the 30 April meeting remains a close call and is a product of our uncertain times,” said Oversea-Chinese Banking Corp. economist Lavanya Venkateswaran, who sees BOT standing pat.
"We expect Asean-5 central bank decisions over the next few months will set up to be close calls, with opinions within monetary policy committees becoming increasingly more divided.”
Economic Outlook
The central bank will release a new set of economic forecasts, and a downward revision may be on the cards.
In December, the BOT predicted 2025 GDP growth of 2.9%, but in February Sakkapop said the central bank expected an expansion of just over 2.5%, and on April 17 said it may be even lower.
Thailand estimates that 36% tariffs in the US - its largest export market - would shave off about one percentage point off its economic growth this year. The nation posted a trade surplus with the US of almost US$46 billion.
Thai and US officials postponed trade talks initially slated for last week, with Paetongtarn saying that Washington wanted her administration to review some issues beforehand.
The prime minister has since ordered her cabinet to address the misuse of certificates of origin by foreign companies trying to dodge higher US tariffs. Thailand will also look into US concerns over currency manipulation, the country’s finance minister said last week.
Despite the weak economic backdrop, the Thai baht has gained over 11% over the past year, the best performer among Asian currencies tracked by Bloomberg. - Bloomberg
