BOT likely to cut policy rate in March

Another policy rate cut is expected at the next meeting of the Bank of Thailand's Monetary Policy Committee in March, given the external risks in Europe and the United States.

There are some concerns over monetary effectiveness due to the likely rise in costs for commercial banks if their contribution to the financial authorities goes up to shoulder some of the interest burden from the Bt1.14-trillion debt of the Financial Institutions Development Fund (FIDF), according to research houses.

"Further policy support is necessary, particularly in light of external risks, which would have a significant impact on domestic demand conditions, Nomura Research said in its Asia Economic Alert, which forecast another 25-basis-point rate cut at the next policy meeting. The MPC is scheduled to convene on March 25.

TMB Analytics estimates another rate cut of 25 basis points to 2.75 per cent in the first half of this year, when three policy meetings are scheduled in March, May and June, and the policy rate is forecast to stay at that level for the rest of this year. The current policy rate is 3 per cent.

However, lowering the borrowing cost this year may not give optimal benefit to business operators and the economic sector like it did previously due to likely higher contributions of commercial banks to financial authorities to bear the interest burden on the FIDF debt, TMB Analytics cautioned. Currently, commercial banks contribute 0.4 per cent of their deposit base to the Deposit Protection Agency.

Risks to Thai exports from this year's likely recession in Europe, recovery from floods and moderate inflationary pressure in the first half are cited as reasons for the likely rate cut, TMB Analytics said.

Although domestic fuel prices are higher, Thailand's inflation continued to ease to 3.37 per cent year on year in January from 3.53 per cent a month earlier, due to lower food prices.