Dr. Amorntep Jawala, Assistant Managing Director of the Research Department at CIMB Thai Bank, revealed that the Monetary Policy Committee's (MPC) decision to cut interest rates from 1.75% to 1.50% was unexpected and occurred faster than anticipated. Previously, we believed the MPC would lower rates, but likely towards the end of the year. This time, the cut came sooner than expected, without prior signals.

Traditionally, before the central bank takes action, there are often differing opinions within the MPC. For instance, the previous meeting had a unanimous decision of 7-0 to maintain interest rates, but this time, a cut was made immediately, citing increased risks and a slowing economy.

There are three main reasons for the interest rate cut. Previously, it was mentioned that the central bank had high tolerance in three areas; today, it seems they have less tolerance or are no longer willing to wait in these three areas:

1. They are no longer tolerant of an economy slowing below expectations. The latest figures from June reflect that the economy is slowing due to exports, which is now affecting the domestic sector. It is believed that the economy in the second quarter will grow below previous estimates. We expected a growth rate of around 2.5%, but how low it will go remains to be seen.

What is noteworthy is that we think the slowdown in the first half of the year is a temporary factor that should recover in the second half. However, as the trade war intensifies, particularly after President Trump's 10% tariff increase on $300 billion worth of Chinese imports, it suggests that the future economy may not be good. This could be a turning point where the central bank can no longer tolerate a slowing economy, as exports are expected to continue to decline, impacting the Thai economy.

2. The central bank is no longer tolerant of low inflation. The latest inflation rate has dropped below the lower limit of 1% again, and looking ahead, falling energy prices and a slowing domestic demand may indicate that purchasing power is not very strong. This could be another factor prompting the central bank to lower interest rates to boost inflation, although I do not weigh this as heavily as the first point.

3. The central bank can no longer tolerate a strengthening baht. Today, the baht is the strongest in the region, and there have been reports for several days about the Thai economy facing issues due to a strong baht, driven by strong fundamentals such as a high current account surplus. Although exports are struggling, there is income from tourism. Importantly, while China is slowing down, we are not significantly affected by the supply chain or the impact of China's economic slowdown.

This makes the baht a safe haven for foreign investors. A strong baht affects the competitiveness of exporters, which circles back to the issues of a slowing economy and low inflation. Therefore, looking ahead, the economy is currently in a slowdown phase. The central bank's decision to cut rates from 5-2 today aims to stimulate the economy and encourage inflation to rise.

"I believe today marks a declaration of a new form of currency war that we must engage in, especially after the central banks of New Zealand and India have also lowered their rates. Thailand's central bank must join in this regional effort to prevent the domestic economy from slowing further.

However, we must look ahead. The central bank raised rates until December and then reduced them to 1.5%. We should ask the central bank two questions: 1. Will the central bank continue to lower interest rates this year or next? 2. Are they still concerned about stability, the economy, high household debt, and excessive risk-taking in investments? I believe these two questions need to be addressed and examined further."

Regarding the first question, will the central bank continue to lower rates? I believe they will. Once the door to lower interest rates is opened, there is a possibility of further cuts, primarily based on economic data. The GDP for the second quarter will be reported in mid-month, and if it comes out poorly, it is possible that the MPC will lower rates again in September or may wait for the third quarter GDP report in November before considering another cut in December.

As for the second question, are the central bank's concerns still valid? Yes, they are. In their statement, I believe the central bank's worries remain, particularly regarding how the rate cuts will impact high household debt and the stability of the financial and capital markets. Importantly, they are concerned about policy space; if a crisis occurs in the future, the central bank may have no tools left to stimulate the economy. Therefore, we must keep an eye on whether the central bank will use other tools besides interest rates to maintain the stability of the financial and capital markets. They have already implemented LTV measures and may consider DSR criteria for lending to customers, which are factors worth monitoring.

In summary, looking ahead, the central bank's interest rate cuts seem to indicate that they can no longer tolerate the trade war escalating into a currency war, with Thailand being a victim of poor export performance and a strengthening baht. However, this interest rate cut may not significantly boost loan growth enough to stimulate the economy, as the Bank of Thailand is likely still concerned about the stability of the financial market.

They also have not relaxed regulations on commercial banks. Therefore, I hope the government will quickly implement economic stimulus measures to help the Thai economy grow better and distribute benefits to SMEs and the grassroots level of the country.

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