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Thailand's Central Bank Cuts Interest Rate to Boost Economic Growth


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Thailand Cuts Interest Rate to 2.25% Amid Economic Pressure

 

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In a pivotal move, the Bank of Thailand's Monetary Policy Committee (MPC) has slashed the key policy rate by 25 basis points, bringing it down to 2.25% effective immediately. This marks the first reduction since May 2020, reversing an increase to 2.5% just last September. The decision, backed by a 5:2 vote, arrives as Thailand grapples with escalating demands from both the government and private sectors to lessen borrowing costs and invigorate a sluggish economy.

 

MPC director Sakkapop Panyanukul explained that the majority of the committee believes this reduction will help alleviate debt burdens while still aligning with the country's aim of keeping household debt manageable amidst slow credit growth. The cut is deemed compatible with the economic potential, reflecting a cautious optimism for future growth.

 

However, the vote was not unanimous. Two members argued that maintaining a 2.5% rate better corresponds with current economic conditions and projected inflation, suggesting it would provide a buffer against uncertain economic challenges ahead.


Looking forward, Thailand's economy is expected to expand at modest rates of 2.7% this year and 2.9% next year. Growth is predominantly fuelled by tourism and increased domestic consumption, with a boost anticipated from government stimulus measures and robust export performance, especially in electronics.

 

Inflation forecasts suggest rates of 0.5% this year and 1.2% next year, with a potential rise in food and energy prices looming. Meanwhile, the central bank is encouraging financial institutions to support debtors through refinancing, aiming to ease financial pressures locally.

 

This bold rate cut underscores the urgent need to stimulate economic activity, amid a landscape of cautious optimism mixed with lingering uncertainties.

 

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-- 2024-10-16

 

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It is possible that the market had anticipated a larger reduction in interest rates by the Thai Central Bank.

Plus buyers of the Thai baht waited until the announcement was made.

It may take some days before we see the baht reduce in value.

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USD strengthened in the same week the BOT cut its interest rate, 

 

https://www.marketwatch.com/investing/index/dxy

 

One possible conclusion is that lower Thai interest rates bodes well for  future improvements to the Thai economy which will be stimulated as a result, hence THB strengthened and offset any loss caused by a weakening USD.

 

 

Edited by chiang mai
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0.25% won't have any impact, other than very short term...like a day or two. 0.50% would've had a slightly longer temporary effect. For true and lasting manipulation, they'd have to cut a full percentage point or more.

 

The Bulletproof Baht is a mighty mystery and has been for 2 decades. It somehow weathers all 💩-storms and always comes out smelling like a🌹:coffee1:

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32 minutes ago, vivananahuahin said:

time to move to Vietnam, the dong is more attractive, it is not realistic to keep invest in this country, too much up and down, no stability.

Yes but VND is heavily managed to within a small band set daily, it's not a like for like comparison. Plus the gov has spent over 20% of its reserves, keeping the Dong stable, that's expensive.

 

https://www.vietnam-briefing.com/news/federal-reserve-interest-rate-vietnam.html/

 

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The Thai baht is appreciating also due to the strong inflow of FDI.

The tension arising in the US-China relationship is diverting investments away from China and into, among other countries, Thailand.

 

US tech giant Google recently announced its plan to invest US$1 billion in a data centre and a regional cloud service in Thailand, followed by several more digital companies. The Board of Investment (BOI) received requests of investment privileges for 46 data centres and cloud service projects worth around 167.98 billion baht.

 

Thailand has also attracted a diverse range of domestic and international investments in the EV sector, with a cumulative investment volume of around 200 billion baht (49 billion from China-based EV manufacturers, including BYD, and 150 billion from Japanese manufacturers).

 

Probably in anticipation of an appreciation of the Thai baht, foreign investors' holdings of Thai shares rose by 70 billion baht in the first eight months of 2024 to 5.18 trillion baht.

 

Finally, the appreciation of the local currency has not put a dent yet to Thai exports (+7% in August) and to the influx of foreign tourists (despite a soft third quarter, the Tourism Authority of Thailand is targeting 36 million visitors and an income of ฿1.81 trillion, some 32% up on last year, by the end of the year), contributing to the further strengthening of the Thai baht.

 

Given the above, I doubt marginal changes of the BOT interest rate may effectively change the trajectory of the Thai baht v/s other currencies.

 

Edited by AndreasHG
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