Making the case for a cut in interest rates
Thai commercial banks and private sector leaders are calling for the Bank of Thailand (BOT) to cut interest rates, following the US Federal Reserve’s decision to lower rates for the first time in four years.
The Fed’s Monetary Policy Committee voted 11 to 1 to reduce the policy rate to between 4.75-5.0%, citing increased confidence in inflation moving towards the 2% target. Fed officials also signalled potential further cuts of 1% in 2025 and 0.50% in 2026.
The Fed’s decision marks a significant shift after maintaining interest rates at their highest level in two decades for over a year.
“This is a period of declining interest rates. The BOT should reduce the policy rate as it has historically followed the Fed’s lead,” said FTI president Kriangkrai Thiannukul
Sanan Angubonkul, chairman of the Thai Chamber of Commerce, echoed this sentiment, arguing that a rate cut would help exporters and the tourism sector compete more effectively.
Several economists have offered their perspectives on the situation.
Pipat Luengnaruemitchai of Kiatnakin Phatra Financial Group, suggests the BOT may not rush to cut rates, focusing instead on domestic factors such as GDP growth. He expects the Thai economy to show 4% growth in Q4 due to government stimulus measures.
Naris Sathapholdeja of TMBThanachart Bank, notes that while global interest rates are trending downward, Thai rates are already lower than regional averages. He believes the BOT may hold off on cuts until December unless the baht appreciates significantly.
CIMB Thai Bank’s Amonthep Chawla also expects the BOT to wait for clearer economic signals before considering a rate cut, suggesting that reducing contributions to the Financial Institutions Recovery Fund (FIDF) could be an alternative.
The Fed’s decision has had ripple effects across Asia.
The central bank of Indonesia was the first to react, cutting rates by 0.25% to 6.0%, the first reduction since February 2021.
The Hong Kong Monetary Authority cut rates by 0.5% to 5.25%, mirroring the Fed’s move due to its currency peg. As for mainland China, a Reuters survey indicates that 69% of analysts expect the People’s Bank of China to cut rates today (September 20). The Bank of Japan is expected to raise rates later this year, bucking the regional trend.
The potential rate cut poses challenges for the Bank of Thailand (BOT).
Currency concerns are rising in Thailand as a stronger baht may negatively impact the country’s exports and tourism sectors. Despite this, some analysts suggest that Thailand’s economy is beginning to show signs of recovery.
In the context of regional economic dynamics, several other Asian nations have already implemented interest rate cuts or are anticipated to do so, further complicating Thailand’s economic landscape.
As global interest rates trend downward, the BOT faces increasing pressure to align with international monetary policy while balancing domestic economic needs. Its decision will be closely watched by both domestic and international observers as it navigates these complex economic waters.
