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Thailand interest rates conundrum: Economy shrinks, as PM wants cuts but central bank doesn't

Thailand interest rates conundrum: Economy shrinks, as PM wants cuts but central bank doesn't


GDP fell 0.6pc in the October to December quarter on a seasonally adjusted basis

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BANGKOK (Reuters) – Thailand's economy unexpectedly contracted in the fourth quarter of 2023 and the policymakers downgraded the outlook for this year, adding to pressure on the central bank to give in to the prime minister's demands for a rate cut.

Prime Minister Srettha Thavisin, who is also the finance minister, has been at loggerheads with the central bank over the direction of monetary policy, repeatedly saying interest rate cuts will help the economy he describes as being in crisis as it confronts high household debt and China's slowdown.

Gross domestic product (GDP) fell 0.6 per cent in the October to December quarter on a seasonally adjusted basis, data from the National Economic and Social Development Council showed on Monday, down from a revised 0.6pc rise in the third quarter. The first quarterly contraction in a year compares with a 0.1pc rise forecast in a Reuters poll.

From a year earlier, the economy grew 1.7pc, slightly faster than a revised 1.4pc growth in the third quarter but slower than a forecast 2.5pc expansion.

A major drag in the fourth quarter was a decline in fixed investment, partly due to a delay in the budget, while domestic consumption stagnated and exports nearly flatlined, Capital Economic said in a research note.

Kobsidthi Silpachai, head of capital markets research of Kasikornbank, said the fourth-quarter disappointment marked "the first leg into a technical recession".

Substantial risks and the impact of China's slowing economy on Thai tourism will exert pressure on the central bank to lower rates, though it might be difficult to move before the Federal Reserve does as it will stoke currency volatility, he added.

Slowing economic momentum raises the chances of a rate cut at the central bank's next policy review on April 10, after it left this month the key rate steady at 2.50pc, the highest in more than a decade, in a split vote. Two dissenters favoured a rate reduction.

"Recent comments from the Bank of Thailand have not clearly signalled an impending shift in its policy stance towards easing. That could change after the expected 2023 growth slowdown is now confirmed," Tim Leelahaphan, economist at

Standard Chartered Bank, said in a note. He predicted two 25 basis-point cuts in the key rate in the first half.

State planning agency chief Danucha Pichayanan told a press conference that monetary policy should support the economy and a quick rate cut would help.

"If it can be done quickly, it should be quite helpful. But we have to look at currency too," he said.

Thailand's shares and baht were barely changed after the GDP data.

Prime Minister Srettha and his government have repeatedly urged the central bank to cut interest rates, saying they are hurting consumers and businesses.

The Bank of Thailand has said rate cuts will do little to revive Southeast Asia's second-biggest economy if structural issues persist.

The economy expanded 1.9pc in 2023, slower than expected, and less than revised 2.5pc growth in 2022.

For 2024, the state planning agency expects growth to come in between 2.2pc and 3.2pc, lower than the 2.7pc to 3.7pc it projected in November.

Exports in 2024 were expected to grow 2.9pc, lower than a previous estimate, while headline inflation was seen at 0.9pc-1.9pc, compared with the central bank's target range of 1pc to 3pc.

The economy should not contract in the first quarter of 2024 if exports recover, the agency said.