As baht gains, Thai rates primed for a cut

The rapid appreciation of the baht could prompt the Bank of Thailand to cut interest rates as early as its meeting in mid-October, say analysts, as ongoing inflows would support a further strengthening of the currency
Kasem Prunratanamala, head of research at CGS International Securities (Thailand), said the baht has strengthened by almost 4% against the US dollar for the year to date, more rapidly than regional peers.
Meanwhile, inflation has fallen rapidly since the second quarter of 2023 and is projected to average just 0.8% for the year, below the central bank’s target range of 1-3%. That target will be on the agenda of talks next week between the central bank and the Ministry of Finance, minister Pichai Chunhavajira said on Tuesday.
The baht has appreciated substantially since July, and inflation is now less of a concern for the central bank, said Mr Kasem.  
“We do not think inflation will be the main concern for the Thai economy this year or next year. That provides some flexibility for the Bank of Thailand to cut its policy rate, especially given the weak domestic economy,” he said.
According to Kasikorn Research Center, the baht was trading at 32.97-99 to the dollar early on Tuesday, edging up from Monday’s close of 33.01, partly supported by the all-time high in global gold prices.
The think tank expects the baht to move in a range of 33.00 and 33.50 this week.
Mr Kasem said that with the US Federal Reserve cutting its policy rate by 50 basis points last week to a range of 4.75% to 5%, analysts are expecting the US central bank to reduce rates by another 75bps in the next two meetings this year. The market believes the federal funds rate could come down to 3% by the end of 2025.
The Fed’s aggressive rate cuts would attract more fund flows to the Thai market, which in turn could drive up the baht further, he said.
“With a weak domestic economy and a strong baht, we expect the Bank of Thailand to slash its rate by 25bps to 2.25% at the next meeting on Oct 16,” said Mr Kasem.
“Even with the cut, the Thai policy rate is still likely to decline more slowly than regional peers, which should put more pressure on the central bank to react because it could affect the country’s exports.”
CGS expects the central bank to cut rates by 50bps next year, bringing the policy rate to 1.75% by the end of 2025, on a par with pre-pandemic levels, he said.
Asia Plus Securities also expects the central bank’s Monetary Policy Committee (MPC) to move quickly to stabilise the baht.
According to the brokerage, the Thai currency has strengthened rapidly as the US dollar weakened after the Fed rate cut. For the quarter to date, the baht has gained 10.3%, the most among Asian currencies, and hit its strongest level in 25 years.
“Thailand’s policy rate may be cut by 25 basis points at one of the two remaining MPC meetings on Oct 16 or Dec 18,” Asia Plus said in a research note.