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Thailand’s Economic Outlook: SCB EIC Predicts Key Interest Rate Cuts in 2024
The SCB EIC's prediction of key interest rate cuts in 2024 signals a potential shift in Thailand's economic landscape. With the research team foreseeing a decrease in the policy rate from 2.5% to 2% by mid-year, the monetary policy stance is expected to lean towards neutrality
The Economic Intelligence Center (EIC) of Siam Commercial Bank (SCB) has projected that the Bank of Thailand (BOT) will implement two rate cuts in the first half of the year.
The projections made by the EIC resulted from some economic challenges Thailand faces.
The EIC expects the BOT’s Monetary Policy Committee (MPC) to reduce the policy rate by 50 basis points during H1.
According to information given by Somprawin Manprasert, Chief economist at SCB EIC, the first cut is predicted to occur at the MPC meeting on April 10, followed by a further reduction of 25 basis points at the subsequent meeting on June 12.
The research team projects that the cuts would bring the policy rate down to 2% by mid-year from the current 2.5%, aligning with a neutral stance on monetary policy.
The SCB EIC’s prediction of key interest rate cuts in 2024 signals a potential shift in Thailand’s economic landscape. With the research team foreseeing a decrease in the policy rate from 2.5% to 2% by mid-year, the monetary policy stance is expected to lean towards neutrality. This adjustment could stimulate economic activity by encouraging borrowing and spending, ultimately boosting growth in key sectors such as manufacturing, tourism, and exports.
Manprasert added that some factors that influence the Thai economy will play a pivotal role in supporting the central bank’s policy rate cuts. He stated that their assessment shows Thailand’s neutral rate has dipped to 2.1%, aligning with a slower pace of economic growth in the country,
The anticipated rate cuts are expected to provide the MPC with the flexibility to readjust its monetary policy stance in response to the structural changes in the Thai economy. Additionally, these cuts ease the debt burden for vulnerable firms and households currently grappling with the exposure due to elevated interest rates.
The rate reductions should bolster economic sentiment amid subdued government spending this year. While these cuts would precede those of the US Federal Reserve, which is expected to start reducing its rate in June, they are unlikely to impact foreign capital outflows and the foreign exchange rate significantly.
In the short term, the baht is expected to stabilize within a range of 35-36 per US dollar, as external factors have already spurred previous baht appreciation. The EIC predicts the baht will appreciate 33.50-34.50 against the greenback by year-end, driven by a weakening dollar following the Fed’s rate cuts and an improved outlook for Thailand’s economy.
The Thai economy’s growth forecast for 2024 has been revised down to 2.7% from 3%, despite signs of a steady rebound. Positive factors include promising prospects in tourism, strong performance in the service sector, and a resumption in demand-driven economic activities. However, continued contraction in public spending in Q1/2024 and high inventory accumulation pose challenges. Addressing structural issues in Thailand’s manufacturing sector will be crucial for facilitating a recovery this year.
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