SCB EIC, a research centre under Siam Commercial Bank (SCB), expects the Bank of Thailand to start cutting the policy rate in April because of structural economic problems.
The research house forecasts the Monetary Policy Committee (MPC) to decrease the policy rate by 50 basis points during the first half of this year.
The first rate cut is expected at the MPC meeting on April 10, with a further reduction of 25 basis points at the subsequent meeting on June 12, said Somprawin Manprasert, chief economist at SCB EIC.
The research unit projects a policy rate of 2% by mid-year, down from 2.5% at present, maintaining a neutral stance on monetary policy.
There are escalating structural headwinds in manufacturing and Thailand's long-term neutral rate needs to be reassessed, according to SCB EIC.
"Factors influencing the Thai economy will play a pivotal role in supporting the central bank's policy rate cuts. Our assessment shows Thailand's neutral rate has dipped to 2.1%, aligning with a slower pace of economic growth in the country," Mr Somprawin said.
Previously SCB EIC estimated a neutral policy rate of 2.5%.
The anticipated rate cuts will not only provide room for the MPC to readjust its monetary policy stance in line with structural change in the Thai economy, but also ease the debt burden, particularly for vulnerable firms and households facing mounting exposure because of elevated interest rates, he said.
The rate cuts should also help bolster economic sentiment amid subdued government spending this year, said Mr Somprawin.
Though these rate cuts would precede those of the US Federal Reserve, which is expected to start cutting its rate in June, the reductions are unlikely to significantly impact foreign capital outflows and the foreign exchange rate, he said.
In the short term, the baht is expected to stabilise within a range of 35-36 per US dollar, as external factors have already spurred previous baht appreciation, noted the research unit.
SCB EIC predicts the baht will appreciate to 33.50-34.50 against the greenback by year-end, driven by a weakening dollar following the Fed's rate cuts and an improved outlook for Thailand's economy.
However, the research house slashed its Thai GDP growth forecast for 2024 to 2.7% from 3%, citing a continued contraction in public spending in the first quarter this year resulting from the delayed passage of the 2024 budget bill.
Tourism and private consumption would be the key factors fuelling Thai economic growth this year, noted SCB EIC.