(Bloomberg) -- Thailand’s central bank said its decision to keep interest rates steady earlier this month provides policymakers options to deal with unexpected global and domestic challenges.

Maintaining the benchmark one-day repurchase rate at a decade-high 2.5% gives the monetary authority “policy optionality” to cope with currency volatility and uncertainties stemming from US Federal Reserve policy and geopolitical developments, the Bank of Thailand said Wednesday.

The BOT has faced increasing pressure from the government to lower borrowing costs amid months of negative inflation readings. Prime Minister Srettha Thavisin has cited the price trends as evidence of absence of demand in the Southeast Asia’s second-largest economy. 

Still, the central bank has stood its ground on rates, on the premise that lowering rates wouldn’t fix the structural problems holding back economic growth. It has also flagged high household debt levels as a threat, and said deleveraging that ratio requires incomes to rise and not just rates to go down.

The hawkish BOT comments against the backdrop of the government accelerating spending after budget approval and a multi-billion dollar cash stimulus slated for the fourth quarter have prompted some economists to scale back expectations of a rate cut this year.

“Unless there is a significant downside risk to the recovery, the next rate cut may be delayed until the second quarter of 2025,” said Pipat Luengnaruemitchai, chief economist at Kiatnakin Phatra Securities Pcl.

The Thai baht was up 0.4% at 12:50 p.m., on a day when most major Asian currencies were higher versus the dollar. The local currency is the second-worst performer in the region so far this year after the Japanese yen.

The baht slumped in line with other regional currencies in response to Fed moves and fund outflows from dividend payments, Assistant Governor Piti Disyatat said at an analyst meeting on Wednesday. The central bank doesn’t see any need for “policy action” on baht, and intervened at times in the market to curb excessive movements, he said adding economic sentiment may improve in the second half, supporting the currency. 

Assessing Data

The BOT will assess incoming data, including economic output and exports performance, in deciding future policy course, the authority said in a presentation to analysts in Bangkok on Wednesday. For now, it judged the rate to be conducive to economic growth over the medium-term and the policy rate as close to the so-called neutral level, Piti said.

The International Monetary Fund forecast the Thai economy to expand by 2.7% this year and 2.9% in the next, making it the slowest pace in the region where peers are notching a pace of 4% plus growth.

Risks to that outlook stem from rising geopolitical tensions, including the conflict in the Middle East, and the prospect of higher-for-longer rates in the US — which could weigh on global demand. 

In the absence of monetary policy support, Srettha has pushed ahead with fiscal steps to spur growth that’s averaged below 2% for the past decade. Chief among his plans is a digital wallet program that seeks to give 10,000 baht ($271) in cash to almost every Thai adult in a bid to boost consumer spending. 

The populist program has faced push-back from the central bank, which in the past has argued that targeting the dole at the most needy would be more effective.

--With assistance from Pathom Sangwongwanich.

(Updates with comments from economist in sixth paragraph.)

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