VIEW: HSBC Believes BoT Has “Ample” Room To Keep Rates At 2.5%

The Bank of Thailand (BoT) kept rates at 2.5% in August and while it sounded more concerned about growth and credit quality, it did reiterate that the “current policy rate is consistent with the economy converging to its potential”. It will be monitoring downside risks, any extensions of price subsidies and deteriorating credit quality. HSBC believes that rates need to stay at 2.5% to aid deleveraging though.

• HSBC believes BoT’s “main agenda is still to bring household debt levels down to more sustainable levels.”
• “A V-shaped recovery in growth seems likely after 2Q 2024 GDP rose 0.8% q-o-q sa (or 3.2% y-o-y annualized). This will likely improve even further as the government catches up on its spending during the last quarter of the fiscal year.”
• “Inflation, on the other hand, will unlikely play a significant role in monetary policy. Headline CPI surprised to the downside in June and has found itself below the BoT's 1-3% target band yet again. Nonetheless, we do not think this constitutes any weakening in demand given how distorted prices are due to the various government subsidies and price controls in place.”
• “However, we think a delay in the FY 2025 budget can potentially trigger a policy rate cut. We would categorize this, however, as low risk given the quick appointment of Prime Minister Paetongtarn.”
• “In addition, the risk of a fiscal stimulus is still tilted to the upside. Although there are discussions of possibly reducing the size of the Digital Wallet Scheme, we do not think a reduction of its size will lead to a policy rate cut. This is because, to begin with, the size of the fiscal stimulus is already very large at THB450 billion.”