Here are reasons why Thailand is leaning towards monetary easing

1Q GDP growth is 5.3%.

According to DBS, with 1Q GDP growth coming in at 5.3% YoY, below consensus estimates and the central bank’s (BoT) projection of 6% and 7% respectively, we think that monetary easing is likely.

Over the last few months, there has been increasing pressure on the BoT to reduce its policy rate to cope with the strengthening baht.

Here's more from DBS:

Based on macroeconomic indicators, with inflation at a low of 2.4% YoY in April and GDP growth showing signs of lost momentum, there is a case building for the BoT to respond.

However, there are risks to further easing monetary policy when asset prices have already run up significantly.

Sharply lower rates would risk a further build up in asset price inflation that could threaten financial stability when the cycle turns. As such, we think that room for rates to go lower is limited (around 25-50bps) and we are penciling a 25bps rate cut, taking the policy rate to 2.50% at the upcoming policy meeting on Wednesday.

Subsequently, we expect the policy rate to be kept on hold at 2.50% for the rest of the year.

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