Why Thailand is unlikely to cut policy rate

Current monetary conditions looking more accommodative.

According to DBS, monetary conditions are arguably more accommodative now than they were in 2Q. The BOT is unlikely to see any compelling reason for another rate cut.

Here's more from DBS:

Recent floods in at least 28 of 77 provinces have led to concerns on the possible impact to GDP growth. Presumably, it is still premature to make comparisons to 2011.

Floods have spread to a major industrial estate in Chonburi (just east of Bangkok) but most damages are still concentrated in the eastern provinces.

Downside risks to GDP growth are still limited, especially since the local authorities are better prepared now. Still, these concerns are likely to be on the agenda during the BOT policy meeting next week.

BOT Governor Prasarn has recently suggested that the central bank may take another look at its GDP growth forecast for 2013-2014. Note that there has been renewed political pressure for the BOT to trim its interest rates further.

That the BOT remains concerned with the pace of loan growth is still clear from their recent comments. Rising household debts remain a key priority going into 2014. CPI inflation is also expected to trend higher, back above 3% YoY next year.

More importantly, the THBNEER has fallen quite markedly from the record-high seen in April. Monetary conditions are arguably more accommodative now than they were in 2Q. The BOT is unlikely to see any compelling reason for another rate cut.

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