CIMB Thai points out that benefit (policy) is not a panacea. We hope to coordinate monetary and fiscal policies.

Another economic issue that many people are monitoring is Thailand's interest rate policy.The government expects the Monetary Policy Committee to reduce interest rates.To help ease the burden on people while choosing the results of the last meeting of the Monetary Policy CommitteeThe interest rate will be maintained.At a rate of 2.5% per annum because it is considered that the current level is in line with the low growth potential of the Thai economy due to structural factors.

Brandinside would like to invite you to understand in order to delve deeper into each perspective. Regarding the impact and direction of interest rates, what will the situation of Thailand be during the coming period?

Amorintip Chawala, Executive Vice President, Executive Directors of the Research Office of CIMB Bank of Thailand revealed this during the week of the Monetary Policy Committee meeting. (February 5-9, 2024) The baht is the weakest in the region. Especially after the Thai economy numbers expanded less in the fourth quarter of 2023 than the previous year. It decreased compared to the previous quarter. Which underscores the pressure to cut interest rates on April 10 further.

At the same time, if we interpret the reasons given by the Monetary Policy Committee, it is likely that it is not yet time to cut interest rates. It is estimated that it comes from 3 main points.

1. The Thai economy is growing slowly due to structural problems. It doesn't come from very high interest rates.
   Structural problems come from the Thai manufacturing sector's connection to the global supply chain. This results in lower export growth even though global demand is recovering well. Lack of competitiveness or lack of products demanded by the global market, for example Thailand is a source of production for hard disk drives (HDD), but the world is changing to use solid state drives (SSD), in this case importing products from China which causes SMEs Thailand should gradually close businesses. To disburse the government budget, whether low or late, which has affected the Thai economy in the past

2. Low inflation is not from weak demand.
   But the inflation rate fell. This is partly due to government energy measures that have caused energy prices in the country to fall. It is a temporary factor and does not come from weak domestic demand. In addition, the Bank of Thailand (BoT) also emphasizes that the price level of goods and services has decreased but is still high compared to the pre-Covid-19 period and believes that if demand is still good in… The country. Using monetary policy to stimulate may not be accurate. It should focus more on solving structural problems in the production and export sectors.
   (In Amunthep's view, weak domestic demand factors make raising prices difficult.)

3. The Bank of England is considering the side effects of cutting interest rates too quickly.
   – Cut interest rates when domestic demand is still strong and consumption can still grow. This may have a side effect on the household debt problem that has improved rapidly during rising interest rates. Further increase and this has a negative impact on long-term economic stability. Keeping interest rates first to maintain the ability to implement the policy or maintain policy space to be used when necessary.

However, “interest is not a panacea.”Lowering the interest rate will help support the economy. But it did not stimulate the Thai economy to expand above 4%. However, cutting the interest rate by just 0.25-0.50% will not significantly reduce interest expenses. Even to relieve stress including creating incentives for people to spend more and invest more. But the transmission of interest rate cuts to the real economy can take up to 6 months, unlike…Financial measuresWhich pumps money into people's pockets and directly to the target group

Moreover Lowering interest rates has side effects.This may cause symptoms of increased household debt. Thai assets were so lacking in interest that foreigners sold them. Making the baht go down could affect imported products to rise in price.

“Reducing the interest rate by only 0.25 or 0.50% is not enough to stimulate the economy. But it must decrease to 1.25% to be sufficient, which is a reduction at the level of the financial crisis. It is the same level that it was at before the Covid-19 crisis. It is one of the side effects of reducing interest rates.” “The interest is like this. This will lead to a decline in the value of the baht. And perhaps a currency war will be declared with the neighbors because a weak baht will deprive us of our ability to compete with competing countries. It may later spread to a decline in the value of currencies in the region.”

Therefore, the research office of CIMB Thailand believes that Thailand's solution should be to coordinate monetary and fiscal policies. Solving economic problems in Thailand

However, Amrnthip expressed concern that policymakers will see that the quickest way (quick profit) may be to allow the value of the baht to depreciate. Whether intentional or not it lowered interest rates enough to stimulate the economy, purchasing power and investment and weakened the baht enough to create competitiveness. But be careful of side effects. High import costs, especially the price of oil, or groups with a high percentage of imports allocated to production, such as canned seafood. Industrial machinery and medical equipment But there are groups that benefit from the weak baht, such as tourism business groups, hotels and restaurants, and export groups such as rubber products and other agricultural products. Cars and their components, computers and components, and industrial areas. Thailand reduces interest rates. Will it declare a currency war with its neighbors? It may later spread to devaluation of regional currencies. Although it is not as serious as the Tom Yum Kung crisis, but if the baht reaches the level of 40 baht per US dollar, there may be certain groups of people affected.

“I think the Thai economy in general is weak and there are no fiscal measures to support it. It will have to rely on lower interest rates to build confidence. Boost liquidity and put pressure on the baht to devalue, but hopefully the Bank of Thailand still has other ways to stimulate the economy through fiscal measures.” Others. There are additional measures that could be added, such as reducing restrictions on lending, lowering the loan-to-value limit, and lengthening the debt repayment period for distressed debtors. However, these measures can only support the economy, giving hope that this Thai economy The year will expand above the 2% level, but whether or not it will be stimulated to reach 3% remains to be seen through various measures from the government again,” Amunthip said.

Source: Research Bureau, CIMB Bank of Thailand

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