The Bank of Thailand's Monetary Policy Committee (MPC) held the policy rate steady on Wednesday but again slashed its economic growth forecast, from 3.3% to 2.8%.
The rate-setting committee voted unanimously to leave the policy rate untouched at 1.50% after a surprise 25-basis-point cut in August.
The MPC estimates that the economy will expand less than previously assessed because of the effect of lower exports on domestic demand, said Titanun Mallikamas, secretary of the MPC.
The panel believes that the 1.50% rate is already accommodative, contributing to economic growth and supporting the rise of headline inflation towards the target, he said.
This is the third GDP growth downgrade this year by the MPC, from an initial 4.2% predicted late last year to 3.8%, 3.3% and now 2.8%.
"The continuous downgrade of the country's economic outlook could be attributed to the difficulty in forecasting the US-China trade situation," Mr Titanun said.
Next year's economic growth forecast was also trimmed to 3.3%, down from 3.7% three months ago.
The central bank slashed this year's export growth forecast to a 1% contraction from a flat reading seen earlier, citing the slowdown in trading partner economies and weakening global trade.
The Bank of Thailand also revised down the country's headline inflation rate for 2019 from 1% seen earlier to 0.8%, which is below the lower bound of the target range of 1-4%. The reassessment was caused by lower-than-expected energy prices and core inflation.
Mr Titanun said the new GDP growth projection has taken into account the government's economic stimulus package and likely delays in fiscal 2020 budget disbursement.
"Without the government's stimulus, the country's GDP growth would be lower than 2.8%," he said.
The central bank is maintaining its private consumption growth estimate at 3.8% for the full year.
Amid the slower economy, the central bank will closely monitor small and medium-sized enterprises, as well as swelling household debt.
Odds favour rate cut
Standard Chartered Bank Thai economist Tim Leelahaphan forecasts a 25-basis-point cut to 1.25% in the final three months, bringing the rate to the floor reached during the global financial crisis.
"While a rate cut may not be effective in tackling the baht's strength, we think the central bank will have little choice but to cut rates as challenges to growth increase," Mr Tim said. "We see a possibility that the policy rate could go lower than 1.25% during this cycle, although this is not currently our core scenario."
ADB downgrade
A downgrade in Thailand's GDP growth prospects this year was also made by the Asian Development Bank (ADB), which anticipates full-year growth to come in at 3%, dragged by weak external demand and lacklustre public investment.
The forecast marks a considerable downward trajectory from a 3.9% annual growth forecast in April.
"Weak external demand will continue in the near term as the US-China trade conflict drags on and perhaps even escalates, damaging global trade," the ADB said in its September report titled "Asian Development Outlook 2019: Fostering Growth and Inclusion in Asia's Cities".
Annual Thai exports are anticipated to expand near a stagnant rate in US dollar terms this year and next, the ADB said.
"Continued escalation of the US-China trade conflict is a major external risk to the outlook in the near term because it could further damage global trade and Thailand's highly trade-dependent economy," the global lender said in its report. "A domestic risk to the outlook would be unexpected delays in implementing planned big-ticket infrastructure projects."
