VIEW: JP Morgan Brings Forward Rate Cuts On Dovish BoT

While the Bank of Thailand (BoT) left rates unchanged at 2.5% in August, it sounded more concerned regarding growth, inflation and financial stability. Not only did it remove “improving” from the growth outlook, it is now monitoring downside risks to private investment and consumption, as well as deteriorating credit quality. Headline inflation is now “expected to decline relative to previous assessment”. Despite this there was only one vote for a rate cut. JP Morgan has now brought forward two rate cuts to Q4:24/Q1:25 from Q2/Q3:25.

• JP Morgan believes that “absent a US/global recession, the magnitude of easing will likely be limited, as we agree with the central bank that the neutral policy rate is higher than the pre-pandemic average of 1.5% due to a structurally narrower savings-investment gap.”
• “The BoT still maintains its neutral rate at 2.5% and guided that it will likely stay on hold in October if growth and inflation forecasts remain the same. We read this as the BoT being in data-dependent mode.”
• “The BoT is also monitoring the potential extension of price controls, as opposed to anticipating the phasing out of energy subsidies … the central bank still expects headline CPI to return to the lower bound of the 1%-3% target range by year-end, but the outlook beyond 2024 appears more dovish.”
• Downside risks to growth could be “a potential catalyst for earlier policy easing.”
• Given recent political upheaval fiscal policy was omitted from BoT’s statement. JP Morgan thinks “that the odds of the cash stimulus program being implemented are now lower, and as such, downside risk to consumer spending and growth is now greater.”
• “For the first time, the central bank expressed the concern that the tightening of financial conditions from worsening credit quality may impact economic growth.”