Siam Commercial Bank's Economic Intelligence Centre believes the policy rate will be sliced by 25 basis points to 3.25 per cent in the final Monetary Policy Committee meeting of the year. That would be followed by gradual cuts of 50-75 basis points next
Suthapa Amornvivat, chief economist and executive vice president of the bank, said yesterday that the private sector must increase stocks of finished goods to ensure sufficient export volumes next quarter after facing supply chain disruptions this quarter.
The supply-chain disruptions have curbed supply and could hurt economic growth, but a lower policy rate could help sustain economic growth, she said.
The research house predicts that the private sector will not be able to resume full operation until the third quarter of next year, so the tight supply situation should become apparent in the second half.
The EIC believes the central bank’s MPC will start nudging the policy rate down by 25 basis points in its meeting on November 30, the first reduction in almost two years. The rate next year should drop to 2.5-2.75 per cent.
Restocking next quarter will be seen in electronic parts, auto parts and consumer products. Restocking means producers will import more supplies, while rebuilding and reinvestment by the private sector will start in the second half of next year, so the trade surplus will gradually shrink.
“However, the balance of trade remains in surplus, as exports are greater than imports,” she said.
Public investment including water-management measures is key to boosting the economy in the first half of next year. The government might require huge loans for post-flood recovery. If it opts for loans from foreign banks, it will face higher interest rates because of global economic volatility.
If the government borrows from local banks, these institutions might run into liquidity problems because of the chase for loans by both the public and private sectors.
Private investment and domestic demand will accelerate growth in the second half, she added.
HSBC in its research note also expects the central bank to knock off 25 basis points from the policy rate at the November 30 meeting, enough to signal support but not too aggressive to undermine its inflation-fighting credibility.
"We believe only when the recovery is firmly established will rate hikes kick in again over the second half of 2012," HSBC said.