Trend of global central banks hints at looming policy rate cut
With the US Federal Reserve announcing a rate cut of 0.5% on Wednesday, economists are hopeful that the BOT will follow suit
The Bank of Thailand (BOT) may soon follow the trend of central banks in developed countries that have recently slashed their policy rate, Asia Plus Securities predicted on Wednesday.
The securities analyst company cited the rate cut announced by the European Central Bank and National Bank of Denmark last Thursday by 0.25%, to 3.50% and 3.1%, respectively.
Earlier on August 14, the Reserve Bank of New Zealand reduced its interest rate for the first time in four years by 0.25% to 5.25%.
The following day, the People's Bank of China cut the country’s interest rate by 0.15% to 2.5%, while Sweden’s Riksbank also cut the policy rate by 0.25% to 3.5% on August 20.
In a recent development, the US Federal Reserve on Wednesday cut the interest rate by a half percentage point for the first time in four years to 5%, in a move to bolster the job market.
Asia Plus said the rate cuts announced by global central banks and quick strengthening of baht, while restoring the confidence in the capital market, are negatively affecting the export sector.
“This puts Thailand in a situation where cutting the policy rate is advisable,” said the company. “We expect the BOT’s Monetary Policy Committee to approve at least a 0.25% rate cut before the end of the year.”
The MPC has maintained the interest rate of 2.5% since November last year.
Before the Fed announced its rate cut, Deputy PM and Finance Minister Pichai Chunhavajira said that although the BOT makes its decision independently, the Thai economy has been mostly linked with that of the United States.
“Every time the US raises or cuts interest rates, it affects the flow of capital in and out of Thai markets. When the US’s policy rate goes down it would also cause the bath to strengthen, and vice versa,” he said.
The finance minister added that the current strengthening of the baht is due to several factors, including the recovery of the Thai economy and the inflow of foreign direct investment, which the MPC must carefully consider before making any decision.
“Thailand is considered a paradise for those who want to store their money. Whether the economy is growing or not, our currency always remains positive. Additionally, we have a strong position in foreign reserves,” Pichai added.
