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The Bank of Thailand (BoT) will hold its regular meeting on 10 June, and likely to keep the policy rate on hold at 1.50%.
Standard Chartered expects the hold on policy rate based on the following key factors:
- Recent weakness in the Thai baht (THB) should reduce pressure for an additional rate cut, at least for the time being. The BoT has been more focused on the exchange rate in formulating its monetary policy stance.
- At the April meeting, the Monetary Policy Committee voted 5:2 to cut the policy rate 25bps, citing the need to offset pressure on the export sector from THB strength.
The BoT will also likely wait for the two consecutive rate cuts in March and April to pass through to the economy before it makes a further move. The fiscal policy is expected to play a greater role in driving economic growth for the rest of this year, says Societe Generale.
Finance Minister Sommai Phasee said on 3 June that there is no need for further rate cuts given the government's plans to accelerate the disbursement of the investment budget to 87% by end-September from 41.6% currently.
The sharp sell-off in German bunds spilled over to Asian emerging markets and caused significant volatility in THB rates. 5Y THB swaps have roughly retraced to levels prior to the BoT's rate cuts in March and April.
Recent comments from Thai policy makers have been mixed, and rate markets imply that policy will remain on hold in June. However, the BoT has said it will maintain "sufficiently accommodative" policy to prop up domestic growth and anchor falling inflation expectations. THB 1Y, 2Y forward swaps are received to take advantage of c.60bps of rolldown in a year, even if the central bank keeps rates on hold, adds Standard Chartered. Thai consumer prices fell 1.27% y/y in May, which pushed up real policy rates to c.275bps and further into restrictive territory.
FX markets are not pricing in a BoT policy rate cut on 10 June. A surprise cut could therefore push USD-THB materially higher. Comments from policy officials on the THB in the past month suggest a clear preference for a weaker currency. The THB has gained c.8% in the past year on a real effective exchange rate basis.
