The Bank of Thailand's (BoT) rate-setting panel has shifted its focus toward the country’s weakening growth outlook, with Nomura Holdings Inc predicting more aggressive rate cuts to support the economy.
The Monetary Policy Committee (MPC) "judged that the balance of risks for monetary policy had shifted towards the economic outlook," according to the edited minutes of its February meetings, when it surprised markets with a quarter-point cut to take the key rate to 2%.
Economic growth will likely grow "significantly below expectations" due to challenges in the local manufacturing sector, tighter financing conditions among households and businesses, as well as the escalating global trade war, the panel said.
Six MPC members voted in favour of the rate cut, with some saying it "would help cushion the economy in the event of lower-than-expected growth in the period ahead," according to the minutes released Wednesday. The one member that voted to stand pat placed "greater emphasis on preserving monetary policy space to manage heightened uncertainties going forward."
It underlines the pessimism taking hold in Southeast Asia's second-largest economy, which was already battling sub-par domestic growth even before the US tariff threats that could dampen its exports sector. The central bank expects a gross domestic product (GDP) growth of slightly above 2.5% this year, below its December estimate of 2.9%.
Nomura has doubled its previous forecast for BoT rate cuts over the next year, pencilling in a total of 100 basis points to take the terminal policy rate forecast to 1% by the first quarter of 2026. The bank expects 25-basis point cuts each in June, October, December and February.
"We sense that local sentiment is worsening, amid the equity market meltdown and intensifying structural problems, with limited reform prospects from the government," Nomura economist Charnon Boonnuch said in a note published on Tuesday.
Key points from the minutes:
- In a scenario where the United States raises import tariffs on Chinese goods to 30% and imposes a 10% import tariff on goods from high-risk countries, including Thailand, economic growth could decline by approximately 0.3 to 0.5 percentage points from the baseline
- The economic recovery has become "more uneven"; the services sector is enjoying a lift from the tourism boom and exports driven by demand for electronic goods, while manufacturing and real estate continue to be challenged
- Headline inflation is expected to stabilise around the lower bound of the 1% to 3% target range due to supply-side factors. Still, there were no indications of future deflation
- To be sure, the February rate cut is "not intended as the start of an easing cycle," the minutes read
- Some members believed that the policy rate of 2% remains robust in the face of future uncertainties, without necessitating further monetary policy easing, as long as the economy did not encounter more severe shocks than expected
- Long-term financial stability risks have also decreased due to the ongoing debt deleveraging process