Central Bank maintains policy rate in June

At its meeting on 12 June, the Monetary Policy Committee (MPC) of the Bank of Thailand voted six to one to maintain the policy rate at 2.50%; one member voted for a cut of 25 basis points, down from two members prior meetings. The decision was widely expected by markets and contradicted government calls for a rate cut.

The Central Bank was motivated by projections that inflation will gradually increase towards the target range by the fourth quarter of 2024. Moreover, the MPC noted robust economic activity driven by stronger-than-expected domestic demand, a continued recovery in tourism, and an acceleration in government spending. Against this backdrop, the Bank deemed that the current interest rate level was appropriate to ensure price stability while maintaining sustainable growth.

The text did not provide specific forward guidance on the future direction of interest rates. Instead, the MPC indicated that it will continue to monitor economic developments—especially the recovery in exports and government measures—and the growth and inflationary outlook in deliberating monetary policy going forward. The Consensus is for the Bank to cut rates by around 25 basis points by end-2024. The next meeting is scheduled for 21 August.

ANZ analysts still expect the Bank to cut rates by year-end: “On balance, today’s vote split and policy messaging suggest the window for an easing pivot has narrowed. However, there was no mention of the current political climate, which could have implications for the anticipated fiscal tailwinds and shift the balance of risks for the economy. Given how fluid the political situation is, we think it is too soon to take out the 25bp rate cut we have pencilled in this year. If political risks intensify in the coming weeks and disrupt fiscal policy implementation, that would strengthen the case for monetary policy support.” Meanwhile, analysts at Goldman Sachs expect the Bank to hold fire throughout 2024: “The central bank changed its language slightly, characterising the current policy rate as being "consistent with improving growth and inflation outlook" vs. "consistent with sustaining growth" previously while iterating that the BoT continues to foster longer term macro-financial stability. We view the tone of the meeting as remaining fairly neutral. We continue to expect the BoT to keep its policy rate unchanged this year, only starting to cut policy rates in Q2 2025.”

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