KASIKORN RESEARCH CENTER (KResearch) projects that the MPC (Monetary Policy Committee) of the Bank of Thailand may come up with a resolution to cut the 1-day-repurchase rate by another 0.50 percent from 4.50 to 4.00 percent in the third meeting of this year on April 11, 2007. This is due to indications that inflation will fall steadily, which should be favorable to the BOT in undertaking a more flexible interest rate policy to stimulate the economy, particularly while risks that may threaten economic growth are becoming more evident. In addition, the movements in the capital and money markets are seen to be adjusting themselves to support the forecast BOT interest rate reduction. Meanwhile, if the BOT does reduce the rate as projected, it should be good for the Baht, and help the BOT to enjoy lower costs when they issue bonds to absorb liquidity in coming phases. If the BOT's decision is as forecast, deposit and lending rates at commercial banks may also fall gradually in the near term, depending on their individual levels of liquidity at each commercial bank and their overall rivaling condition.
Concerning the overall trend for the BOT policy rate, KResearch views that there is room for further rate reductions by the BOT (perhaps at least 0.25 percent, which would put the BOT benchmark rate at 3.75 percent). However, such policy implementation would depend on how economic indicators evolve, e.g., domestic spending, private sector confidence, the political situation, oil price movements, the Baht's direction, etc.
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