The MPC is surprised by the first interest rate cut! SCB EIC plans to reduce interest rates again to 2% within the first quarter of next year to ease financial conditions.
Siam Commercial Bank Center for Economic and Business Research or SCB EIC that the Monetary Policy Committee or MPC meeting had a unanimous 5-2 vote to reduce the policy interest rate by 0.25% to 2.25%, with 2 votes agreeing to keep the interest rate at 2.50%. believes that reducing the policy interest rate will help reduce the debt burden to some extent. This lower policy interest rate will not hinder the process of reducing the debt-to-income ratio (Debt Deeveraging) amid the slowing credit expansion trend down. and whether the level of the policy interest rate remains within the range consistent with the expansion potential of the Thai economy. That is, it is a rate that neither stimulates nor slows down the economy.
SCB EIC believes that the MPC’s communication was not very boring since the previous meeting. Because it still emphasizes the stability of the financial system and the maintenance of monetary policy policy area. And the interest rate outlook should not be too low so that risk accumulates in the long term.
In terms of the economic and financial outlook, the MPC continues to see a similar picture. The Thai economy is estimated to expand at 2.7% YOY and 2.9% YOY in 2024 and 2025, respectively, close to the estimates at the June meeting of 2.6% YOY and 3.0% YOY, respectively, while It is estimated that general inflation will return to the target range at the end of this year. Core inflation is estimated at 0.5% and 1.2% in 2024 and 2025, respectively, slightly down from the previous estimates of 0.6% and 1.3% in June.
Financial conditions have tightened following the strengthening of the baht. and the total volume of lending slowed. The SMEs business group has a higher credit lapse. At the same time, credit quality continues to decline.
SCB EIC will see if the MPC continues to cut interest rates or not. It really depends on the financial situation.
The reduction in the interest rate this time was a reduction to ease the financial situation. Amid a slowdown in credit growth and credit quality gradually declining. This is to prevent the risk that tight financial conditions will put more pressure on the economy in the next period. This can be seen in the MPC communication this time that the interest rate cut this time is not to stimulate the economy. By trying to maintain a neutral stance on monetary policy according to economic and inflation trends that the MPC had assessed remained similar to the previous meeting. It also emphasizes the stability factors of the financial system as happened in previous meetings. The MPC believes that interest rates should have a role in the debt deleveraging process that they should not be too low to encourage the build-up of household debt, which will affect . to the long-term stability of the financial system Consequently, the timing of future policy rate cuts is highly dependent on the impact of tight financial conditions on economic activity.
SCB EIC predicts that we will see the MPC cut interest rates again within the 1st quarter of 2025 to ease financial conditions further. The economic picture and credit crunch will continue to happen. The concern of the situation will increase in the coming period. But it happens gradually. At the same time, global financial conditions will begin to ease.
- SCB loan situation EIC assesses that, in addition to MPC’s concerns about SME business loans, the expansion of household credit will be an additional factor weighing on the Thai economy. from financial institutions’ home loan standards, which are likely to continue to tighten This is in line with the quality of household credit which has declined significantly.
- Risks to the Thai Economy SCB EIC believes that risks to the Thai economy will increase next year in line with increased global economic risks. both geopolitical problems and uncertainty from US trade policy. After this year’s election This could put pressure on the Thai product export sector. Even though exports are now back to being the main driver of the Thai economy amid weaker domestic demand and
- Global financial conditions will continue to ease. following a reduction in policy interest rates by major central banks The global financial environment will be more conducive to a reduction in Thailand’s policy interest rate.
SCB EIC therefore believes that the MPC will reduce the policy interest rate again to 2% within the first quarter of next year.
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2024-10-16 17:54:00
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