(Feb 21): As the Bank of Thailand (BOT) comes under growing political pressure to cut interest rates, most analysts expect the monetary authority to resist calls for any off-cycle easing to support the economy.

The deepening rift between Prime Minister Srettha Thavisin and the central bank over monetary policy direction is bound to hurt investor confidence, though the prospects of Sethaput Suthiwartnarueput’s exit as the BOT governor are slim, according to analysts from Barclays Bank plc and Nomura Holdings Inc.

Srettha, who has been at loggerheads with the central bank on the approach to revive Southeast Asia’s second-largest economy since taking power in August, ratcheted up tensions on Monday with a late night call for an emergency monetary policy review to lower borrowing costs. The former property tycoon is pushing for a quarter-point rate cut, after data showed that fourth-quarter economic output was weaker than expected.

The BOT’s Monetary Policy Committee, which earlier this month kept rates steady at a decade high 2.5% in a split decision, is now scheduled to meet only on April 10. The last time the BOT held a special rate meeting was during the early days of the Covid-19 pandemic in 2020.

“We continue to think that the BOT will cut rates in its next meeting in April due to the significant slowdown in growth,” Shreya Sodhani, an analyst at Barclays said, adding that she doesn’t see the bank holding an unscheduled meeting. Policymakers “held rates in the face of the prime minister calling for cuts in their previous meeting, which shows that it is unlikely that they flip views now”.

Euben Paracuelles of Nomura also doesn’t see the BOT yielding to political pressure. But he sees rising possibility of an easing in April, with total cuts of 100 basis points this year.

The BOT is “on a bit of a catch-22 situation”, Paracuelles said, noting that it’s caught between the need to act on weak economic data and the need to stand its ground amid the prime minister’s strengthening push to cut rates. “This generates some uncertainty and the risk is that policy credibility is undermined.”

Srettha, who is also the finance minister, said he had no power to instruct the central bank as it’s an autonomous institution, but the BOT shouldn’t disregard people’s livelihood and problems. “April is almost two months away, and I urge them to reconsider the decision,” Srettha told reporters on Tuesday after a Cabinet meeting.

The fallout of the differences is already being felt in Thailand’s equity as well as bond markets, amid uncertainty that policy can change in either direction. Investors have pulled out US$1.5 billion (RM7.19 billion) from Thai stocks and bonds so far this year — the most in Southeast Asia — helping drive the baht to a three-month low against the US dollar.

Srettha’s push for rate cut is the most overt bid by a Thai prime minister to influence monetary policy since 2013, when members of Yingluck Shinawatra’s administration pressured then governor Prasarn Trairatvorakul to cut rates. Firing a Thai central bank chief is rather difficult, after a 2008 amendment to the central bank law conferred the BOT more independence.

Sethaput, a former World Bank senior economist and Yale University alumnus, was named as the BOT governor for a five-year term in July 2020. He was a member of the rate panel since 2014, before being picked by the then military-backed government of Prayuth Chan-o-cha for the top job.

Lavanya Venkateswaran, a senior Asean economist at Oversea-Chinese Banking Corp (OCBC) in Singapore, sees low possibility of Sethaput being let go on account of the differences.

“The best outcome is that both parties continue to voice their views, even if publicly, but allow for data and time to dictate the narrative,” Venkateswaran said.