Analysts: Rate cut unlikely before Q2 of 2025

The Bank of Thailand is unlikely to lower interest rates until the second quarter of 2025, when the economy could hit a fiscal cliff after the impact of the 10,000-baht digital handout diminishes, as expectations grow that the Federal Reserve will keep US rates elevated for longer, say analysts.

At a monetary policy forum the Thai central bank remained hawkish, citing reasons why the current policy rate is appropriate, said BofA Global Research, a unit of Bank of America.

BofA expects a continued economic recovery and is concerned about potential financial stability risks from prolonged low interest rates, which could worsen household debt levels in the future, according to a report issued yesterday.

The central bank reiterated the slowdown in the economy and inflation “was not attributable to monetary policy”, but rather to delayed government spending, the manufacturing inventory cycle, export challenges related to competitiveness and supply-related factors.

“The Bank of Thailand expressed concerns related to financial stability issues, especially household debt, cautioning that while lower policy interest rates may temporarily ease debt servicing, they could lead to an increase in net borrowing in the future,” noted the report.

Uncertain global factors such as the Fed’s policy and geopolitics are causing currency volatility, including for the baht, especially during periods with negative rate differentials.

The Bank of Thailand views keeping the policy rate unchanged as helping to provide “policy optionality” in such circumstances.

According to BofA, the Monetary Policy Committee repeated that it stands ready to cut rates if its assessment of the economy changes significantly, especially the recovery of exports or changes in government policy.

“However, given the hawkish stance and expected economic boost from regular fiscal disbursements as well as potential stimulus from the digital wallet policy, we now expect no rate cuts until the second quarter of next year, when the economy could hit a fiscal cliff after the impact of the digital wallet wanes,” noted the report.

In a related development, Kasikorn Research Center (K-Research) anticipates the Fed will keep its policy rate unchanged at 5.25-5.5% at its meeting from April 30 to May 1.

“US headline inflation rose more than expected to 3.5% year-on-year in March, up from 3.2% in February, while the annual core consumer price index remained high at 3.8%. That indicates it will take longer to bring down inflation to the Fed’s target range of 2%,” said head of research Lalita Thienprasiddhi.

“K-Research anticipates US rates might need to remain elevated longer, with the Fed likely to cut rates less than three times this year, down from a previous outlook.”

We now expect no rate cuts until the second quarter of next year, when the economy could hit a fiscal cliff after the impact of the digital wallet wanes. BOFA GLOBAL RESEARCH REPORT