The Bank of Thailand (BOT) will leave its key interest rate unchanged at 2.50% next week and for the rest of the year, according to a Reuters poll of economists who brought forward their first rate cut expectations by a quarter.
Inflation quickened in September to 0.61% from 0.35% in August but remained below the BOT's target range of 1-3%. However, median forecasts in the poll showed inflation will return to within the range this quarter.
Growth in Southeast Asia's second-largest economy has lagged its regional peers due to high household debt but is expected to improve with an increase in tourists and a pick-up in public spending supported by the government's digital wallet scheme.
A strong majority of economists, 24 of 28, in the Oct. 7-10 poll forecast the BOT to keep its benchmark one-day repurchase rate (THCBIR=ECI) unchanged at 2.50% on Oct. 16.
Four expected a 25 basis point cut, a move the government wants to help revive the sluggish economy.
"As the BOT remains 'outlook dependent and looking through short-term noises,' and as long as there is no significant downside risks to their economic outlook, the BOT could view the current monetary policy stance as suitable," said Poon Panichpibool, a markets strategist with Krung Thai Bank.
"Moreover, the BOT could decide to use more direct measures to alleviate the household debt problem. The policy rate will be the last thing that the BOT will utilize unless there are clear downside risks from weakness in the domestic economy."
The central bank reiterated at its last meeting that the current policy interest rate is consistent with the economy converging to its potential.
Among economists who provided a forecast for year-end, around 60%, or 15 of 26 said interest rates will remain on hold. The rest expected a decrease of 25 basis points or more.
The median forecast suggested the first 25 basis point cut to come next quarter, a change from an August poll where the first reduction was predicted to come in Q2.
That change in view comes after the Thai baht touched its highest level in 31 months on Sept. 30, posing a challenge to exporters and tourism spending, along with household debt reaching a record high.
After almost a year-long tussle regarding economic support between the government and the BOT, both met last week to express their concerns. They will be meeting again this month to discuss the inflation target.
"The minister and the governor do meet regularly. Therefore, the meeting should not influence the MPC's decision," said Nond Prueksiri, senior economist at Siam Commercial Bank.
"The BOT will have to recalibrate its policy thinking given it will be increasingly obvious that the potential growth rate of the Thai economy will be significantly lower than in the past."
Thailand's economic growth will average 2.5% this year and 2.9% in 2025, poll medians showed, from 2.6% and 3.2% predicted in July.
(Other stories from the October Reuters global economic poll)
