(Bloomberg) -- The Thai baht may extend its recent declines to test support at last year’s low amid growing pressure on the central bank to cut interest rates. 

The currency has already dropped almost 7% since the start of January, making it one of Asia’s worst performers, and putting it less than 1.4% away from October’s low of 37.237 per dollar. Some analysts see that level being tested if the Bank of Thailand trims its benchmark on Wednesday. 

While economists are predicting policymakers will stay on hold this week, traders are on guard for any dovish comments after two central bank members voted for a reduction at the previous meeting in February. The government is clearly hoping for that outcome after Prime Minister Srettha Thavisin called for an emergency rate cut in February.

The Bank of Thailand’s benchmark is at 2.5%, a discount of 3 percentage points to the upper bound of the Federal Reserve’s key rate of 5.5%.

“Headwinds from fiscal uncertainty and negative carry may continue to weigh on the baht in the near term,” said Moh Siong Sim, a foreign-exchange strategist at Bank of Singapore Ltd. “The latest economic activity data, which remains too weak for comfort, may justify an April rate cut although it would be tough to avoid the impression that political pressure added to the decision.” 

Weak domestic consumption and disinflation are worsening the currency’s outlook and are making a future rate cut likely even if the central bank holds off this week. The economy shrank 0.6% on a quarterly basis in the final three months of last year, the worst performance since the end of 2022.

Also posing a threat to the baht are signals from the Fed that it’s in no hurry to cut interest rates until inflation is conquered.

The baht has likewise suffered as global funds sold $1.9 billion of Thai equities this year through April 3 amid concern the lethargic economy will sap corporate earnings.

“We think the Bank of Thailand will cut rates, which would be baht-negative via wider rate differentials, and perceptions of the central bank’s independence under threat,” said Nicholas Chia, a macro strategist at Standard Chartered Bank SG

“There’s a non-negligible risk that baht may re-test the levels of 2023. It’s a high-beta currency, so good news in the US is bad news for the baht.”

Here are the key Asian economic data this week:

  • Monday, April 8: Japan labor cash earnings and BOP current account, Philippine interest-rate decision, Australia home loans, Malaysia industrial production
  • Tuesday, April 9: Australia consumer and business confidence, Taiwan CPI
  • Wednesday, April 10: Bank of Thailand rate decision, RBNZ rate decision, Japan PPI, Taiwan trade balance
  • Thursday, April 11: China CPI and PPI, Philippine trade balance, Australia household spending
  • Friday, April 12: Monetary Authority of Singapore policy decision, and Singapore 1Q GDP, Bank of Korea rate decision, New Zealand manufacturing PMI, China trade balance, India CPI and industrial production

--With assistance from Hooyeon Kim.

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