ab7 February 2024Global Research and Evidence LabAPAC Economic PerspectivesBoT: Dissent emerges, precursor to rate cut?Policy rate retained at 2.5% p.a in a 5-2 split BoT kept the policy rate unchanged at 2.50%, the second hold following eight consecutive rate hikes. (See monetary policy statement (MPS) here.) The decision was in line with our and consensus expectations. Dissent emerged in the monetary policy committee (MPC); two members voted for a 25bp rate cut, the first time since the start of this hiking cycle (Aug'22) i.e. the first time in 10 policy meetings. Dissent does not invariably signal an imminent policy move, but it shows the balance of views within the MPC has turned more dovish. We retain our view that the BoT will reduce the policy rate by 25bp at the April meeting, ahead of the Fed. Two reasons: 1) BoT's downward revisions to growth and inflation, and 2) our view that the odds of a fiscal stimulus have been shifted later in 2024 (not soon enough to lift growth or threaten inflation). We also note that the BoT has previously cut rates before the Fed in 2007 and in 2015, even as the Fed had started tapering QE.BoT's guidance for lower growth and inflation the more important signalBoT revised down expectations for growth this year to 2.5-3%, from 3.2% at its last meeting. BoT also halved its inflation forecast to around 1% (vs. 2% in Nov'23). The BoT reviews official growth and inflation forecasts four times a year (Apr/Jun/Oct/Dec this year). Lowering growth and inflation expectations ahead of the forecast meeting means economic fundamentals have shifted faster than BoT's expectations in the direction that could warrant policy easing. The growth forecast is important as BoT sees potential growth at about 3%, as per post meeting comments by the Assistant Governor. This means BoT expects the negative output gap to widen this year, warranting policy accommodation even from a cyclical perspective, irrespective of whether the current drags on growth are cyclical or structural. The MPS added a dovish leaning sentence "The Committee nonetheless notes heightened uncertainties associated with cyclical and structural factors, and will take into account growth and inflation outlook in deliberating monetary policy looking ahead."We lower our growth forecasts ('24: 3.0% vs. 3.4% prev)We had flagged downside risks to growth here. Factoring in declining manufacturing production, but bearing in mind private consumption indices over the past two months have increased modestly, we revise down our GDP growth forecast for 2023 to 2.1% (Prev: 2.4%), expecting Q4 GDP growth to be 2.4% y/y (out on Feb 19, vs our previous forecast of 3.6% y/y). In addition, as the government has signalled potential delays in the digital wallet rollout, we postpone our expectation of this stimulus to Q3 (Prev: May). Factoring in the delayed...
