Analysts hold breath on interest rates

Economists are still at odds over whether the Bank of Thailand's Monetary Policy Committee (MPC) will lower its policy interest rate tomorrow to boost lukewarm economic growth amid enduring political turbulence.

Usara Wilaipich, a senior economist at Standard Chartered Bank, said the rate-setting committee may have difficulty in making the decision as there are downside risks to economic growth from political tensions and a further rate cut could accelerate persistent capital outflows.

The political turmoil has weakened consumer confidence and encouraged capital outflows, while the baht's retreat to a three-year low has pushed up importers' costs.

Ms Usara said the caretaker government cannot pass policies to support economic growth, so headline inflationary pressure might rise if the government's excise tax subsidy on the diesel price does not gain further approval by the Election Commission.

It is also unpredictable whether another rate cut will prompt commercial banks to follow suit.

Tamed inflationary pressure is, however, viewed as the main factor supporting another rate cut, said Ms Usara.

"The prospect of the MPC lowering its policy interest rate is low, but I wouldn't be surprised if there is another rate cut," she said.

Benjarong Suwankiri, first vice-president of TMB Analytics, said the MPC is not expected to slash the benchmark interest rate and is likely to adopt a wait-and-see stance.

The committee lowered its benchmark interest rate to 2.25% from 2.5% in its final meeting last year in November in a bid to help the lacklustre economy regain momentum.

On the contrary, Santitarn Sathirathai, a Singapore-based senior economist at Credit Suisse Group, said a rate cut is possible because economic growth will continue to lose its speed if the political situation deteriorates.

He said low inflationary pressure and easing concerns on bubbles in asset prices may also persuade the MPC to reduce the rate.

Charl Kengchon, managing director of Kasikorn Research Center, said the rate-setting committee is expected to assess export figures and domestic political developments before deciding to lower its policy interest rate.

It might make a move to reduce rates if exports still have not improved, he said.

Former finance minister Thirachai Phuvanatnaranubala, meanwhile, echoed the same opinion that there is room for the committee to cut the rate, given the fragile state of economic growth.

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