• The Bank of Thailand (BoT) maintained the Overnight Repurchase Rate at 2.50%, in line with market and house expectations.
  
  − The Monetary Policy Committee (MPC)voted 6-1 to maintain the policy rate for thefifth consecutive meeting.
  
  − The BoT's decision to keep interest ratessteady reflects its view that the current ratesupports economic growth while ensuringfinancial stability. However, the MPCexpressed concerns about deterioratingcredit quality and its possible impact on thebroader financial and economicenvironment. Additionally, recent politicalinstability following Prime Minister’sdismissal adds complexity to managingeconomic policy. Balancing growth withthese emerging risks ultimately justified maintaining the policy rate.

• The BoT expects the Thai economy to continue expanding, driven mainly by tourism and domestic demand
  
  − The 2Q24 GDP growth improved to 2.3%, up from 1.6% the previous quarter, buoyed by improved tourism andconsumption. However, Thailand's growth still lags behind regional peers like Malaysia (5.9%) and Indonesia(5.0%). Despite this, the Bank of Thailand (BOT) has maintained its 2024 GDP growth forecast at 2.5%. Recentdata, including July’s Manufacturing PMI, rise to 52.8 (51.7; June), supports a gradual economic recovery.

• The BoT expects headline inflation to reach its target range towards the end of the year
  
  − In July, headline inflation inched up to 0.83% (Jun: 0.62%) but remain below its target range, largely due to subduedagricultural prices driven by favourable weather conditions. Despite this mild price pressure, BoT forecasts annualheadline inflation to gradually return to its target range of 1.0% to 3.0% by the end of 2024.

• We expect the BoT to keep rates unchanged in the near term despite slower growth and stable inflation
  
  − The current monetary policy aligns well with prevailing inflation trends, with headline inflation expected to risegradually in 2H24 but remain within the target range. However, concerns about potential growth slowdown persistdue to global economic uncertainties and higher interest rates. These concerns are compounded by deterioratingloan quality and recent political changes that could undermine the effective economic policy implementation.
  
  − USDTHB year-end forecast (34.9; 2023: 34.61): We maintain our forecast, despite the recent appreciation to 34.2against USD, as uncertainty over the US rate cut trajectory and potential economic slowdown could trigger a flightto safe-haven assets, benefitting the greenback.

Source: Kenanga Research - 22 Aug 2024