Investors Ratchet Up Bets for Thai Rate Cuts on GDP Weakness

Prime Minister Srettha Thavisin has escalated calls for the Bank of Thailand to trim rates in an off-cycle decision following surprise weakness in fourth-quarter growth. While the push goes against Economics 101 that monetary-policy making should be independent, the country’s deflationary streak had already given rise to bets that a rate cut is on its way.

Market watchers see rising possibility of an easing at the next scheduled meeting in April, with the central bank chief resisting calls for an emergency move in an interview with Nikkei on Wednesday. Baht swaps are now pricing in around 25 basis points of reductions over the next three months compared with just 10 basis points at the end of last year.

“The recent economic data has been fairly poor” and monetary easing would’ve been one of the tools considered by the central bank, said Leonard Kwan, a portfolio manager at T. Rowe — the second largest holder of the country’s 50-year bonds, according to data compiled by Bloomberg. “We are happy to keep our current positioning” as the soft set of data will allow the bonds to be more resilient versus global peers, he added.

Economists surveyed by Bloomberg expect Southeast Asia’s second-largest economy to expand 3.3% this year, a better performance than in recent years but trailing the 4% plus growth rates seen before the pandemic.

“Already we are seeing Thai GDP weakening to 1.9% in 2023 against a backdrop of deflation,” said Kheng Siang Ng, head of Asia Pacific fixed income at State Street Global Advisors. “It is no surprise the market is expecting rate cuts soon.”

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