After the Federal Reserve cut interest rates in September, most markets around the world entered an easing cycle, and a wave of interest rate cuts in emerging Asian markets began!

On Wednesday, October 16, the Bank of Thailand unexpectedly cut interest rates by 25 basis points to 2.25% with a 5-2 vote. This is Thailand's first rate cut since 2020 to stimulate a weak economy; the Philippines also announced an interest rate cut of 25 basis points to 6% today to boost the economy and cope with the growing risk of overseas uncertainty. Last week, the Bank of Korea cut interest rates by 25 basis points to 3.25%. Although the Bank of India kept interest rates unchanged, it changed its policy stance to neutral, suggesting that interest rates may be cut.

After announcing interest rate cuts today, the Bank of Thailand raised the 2024 economic growth forecast from 2.6% to 2.7%, but lowered the 2025 economic growth forecast from 3% to 2.9%. Furthermore, the Bank of Thailand also lowered the overall inflation forecast for 2024 from 0.6% to 0.5%, which is still below the target range of 1%-3%. The Bank of the Philippines lowered the 2024 inflation forecast to 3.1% from the previous 3.3%, but raised the 2025 inflation forecast from 2.9% to 3.3%.

Economists predict that both Thailand and the Philippines may cut interest rates by another 25 basis points in December. Under the influence of high household debt, high borrowing costs, and weak exports, Thailand's economic growth lags behind that of its predecessor countries; while the Philippines' inflation falls below the central bank's target range, the economy shows signs of slowing down.

Since September 2023, interest rates in Thailand have remained at a ten-year high of 2.5%. Thailand's benchmark stock index SET Index rose 2.54% after an unexpected interest rate cut. The exchange rate of the Thai baht against the US dollar fell to an intraday low, trading at 33.384 baht per dollar.

Meanwhile, the current interest rate cut in the Philippines lowered interest rates to their lowest level since February 2023. The Philippine Stock Exchange Index PSEi Index declined slightly after the news was released. The Philippine peso did not fluctuate much against the US dollar.

Thailand cuts interest rates by 25 basis points to deal with high household debt, high borrowing costs, and weak exports

As the second-largest economy in Southeast Asia, Thailand's economic growth has lagged behind its predecessor due to high household debt, high borrowing costs, and weak exports.

As of June this year, Thailand's total household debt was 16.3 trillion baht (about 488.9 billion US dollars), accounting for 89.6% of GDP, making it one of the highest among Asian countries. The Bank of Thailand said in a statement that the current interest rate cut will help reduce the burden of household debt and will not affect the process of reducing household debt as a share of GDP.

The Thai baht rose 14% last quarter, putting Thai exports at a disadvantage compared to competitors. Miguel Chanco, chief emerging Asian economist at Pantheon Macroeconomics, said: “Given the rapid appreciation of the Thai baht, the reasons for cutting interest rates have become more plentiful.” Chanco also predicted that the Bank of Thailand might cut interest rates again in December.

Just a few hours before the decision to cut interest rates, Thai Commerce Minister Pichai Naripthaphan was still calling for a 50 basis point cut in interest rates this year, and the Federation of Thai Industries once again called for a 25 basis point cut to reduce the financial burden on enterprises.

With this interest rate cut, the Bank of Thailand raised the 2024 economic growth forecast from 2.6% to 2.7%, but lowered the 2025 economic growth forecast from 3% to 2.9%. The World Bank predicts that the Thai economy will grow 2.4% this year and 3% in 2025.

The Bank of Thailand also lowered the overall inflation forecast for 2024 from 0.6% to 0.5%, which is still below the target range of 1%-3%.

The Philippines cut interest rates for the second time this year and may continue to cut interest rates in December

Bank of the Philippines Governor Eli Remolona said today that the central bank's policy interest rate cut by 25 basis points indicates that the Bank of the Philippines continues the easing cycle that began in August — in August, the Bank of the Philippines cut interest rates by 25 basis points, and acted earlier than the Federal Reserve.

Today's interest rate cuts in the Philippines have been anticipated, as inflation in the Philippines continues to ease and external uncertainty increases. Analysts believe that there is room for further interest rate cuts in the Philippines, which may cut interest rates by another 25 basis points in December, because Philippine inflation is below the central bank's target range of 2%-4%, and the economy is showing signs of slowing — government data showed that the Philippine GDP grew 6.3% year on year in the second quarter, but only 0.5% month-on-month.

With this interest rate cut, the Bank of the Philippines lowered the 2024 inflation forecast to 3.1% from the previous 3.3%, but raised the 2025 inflation forecast from 2.9% to 3.3%, and raised the 2026 inflation forecast from 3.3% to 3.7%.

Last week, South Korea cut interest rates, and India hinted that interest rates might be cut

On October 11, the Bank of Korea (BOK) lowered its benchmark interest rate by 25 basis points to 3.25%, in line with expectations. This is also the first time the Bank of Korea has cut interest rates since the 2020 pandemic. Park Seok Gil, chief Korean economist at J.P. Morgan Chase, commented that the Bank of Korea's decision may be the beginning of a wider cycle of interest rate cuts. Kathleen Oh, Korea's chief economist at Morgan Stanley, predicts that after cutting interest rates by 25 basis points in October, the Bank of Korea will cut interest rates for the next three consecutive quarters, eventually lowering the benchmark interest rate to 2.5%.

On October 9, the Reserve Bank of India (RBI) kept interest rates unchanged, but relaxed its hawkish monetary policy position and changed its policy stance to neutral. This was the first time since June 2019 that the Bank of India changed its position. Economists predict that the Bank of India may cut interest rates at the December meeting.