BANGKOK (Reuters) - Thai policymakers will cut the country’s benchmark interest rate on Wednesday to help the economy cope with the damage from months of political unrest, according to a majority of economists polled by Reuters.
But the majority is a slim one, reflecting uncertainty over how the Bank of Thailand’s monetary policy committee - which surprised economists by not cutting the rate at its last meeting - will act at a time busy Bangkok intersections are no longer blocked by protesters.
Eleven of 19 economists polled expect the committee to trim the one-day repurchase rate by a quarter of a point to 2.0 percent to shore up growth.
The other eight expected no change, saying the current rate is already low enough and further easing could spur fund outflows, worsen household debt and stoke inflation, which remains benign now.
In November, when anti-government protests had just begun, the committee surprised nearly all economists by cutting the rate, citing an economic impact from the political tension.
Then, at the last meeting on January 22, the committee unexpectedly kept the rate unchanged, although it warned of substantially increased risks to growth from turmoil. But that vote to hold was 4-3, with three members wanting a cut.
The protracted tension is hurting tourism, consumption and confidence. The central bank, which has cut its forecast to around 3 percent economic growth this year, recently said it might be slightly less due to weakening domestic demand.
Analysts who see a cut on Wednesday feel that the central bank has to respond to lift the economy at a time there’s no fully-functioning government to try.
“With growth set to remain weak, fiscal policy effectively paralyzed by the political impasse, and inflation unlikely to emerge as a major policy concern anytime soon, we think the Bank of Thailand will cut its main policy rate by 25 bps” on Wednesday, said Krystal Tan, economist with Capital Economics in Singapore.
GOVT‘S HANDS BOUND
Benjamin Shatil, an economist with JP Morgan in Singapore, said “very weak momentum in private investment alongside ongoing delays to public investment spending suggested space for further easing”.
Su Sian Lim, ASEAN economist at HSBC, said a cut is likely. “With the caretaker government’s hands bound with regards to new spending, it is now solely up to the central bank to step up to the plate and mitigate further downside risks to the economy as best as it can,” she wrote on Tuesday.
Economists who expect a hold on Wednesday say the policy rate is already low and further easing might do little to help the economy while political tensions linger.
“One wonders if a rate cut would be able to lift sentiment in the economy,” said Gundy Cahyadi, DBS Bank economist in Singapore. “We think that the central bank may continue to err on the side of caution and keep rates stable for now.”
Barnabas Gan, economist with OCBC in Singapore, said a rate cut could weaken the baht and “may worsen the already high household debt”. He said that farmers who haven’t been paid what the government promised on a rice-subsidy program might have to take on more debt to meet daily needs.
Protesters who seek to unseat Prime Minister Yingluck Shinawatra, have scaled back action this month, lifting the occupation of several main intersections. Still, several thousand are camping out in Bangkok’s Lumpini Park and have vowed to stay there until Yingluck is out.
A general election o February 2 was disrupted by opponents, leaving Yingluck with a caretaker government with limited powers to borrow or spend. Analysts say it could be a long time until a new functional administration is installed.
Additional reporting by Pairat Temphairojana; Editing by Richard Borsuk