"We reckon that the chances of another 50-basis-point cut in May would increase significantly if April core and headline inflation were less than 1.3 per cent and 2 per cent respectively, and if March private consumption and investment indexes continued to contract," the securities house said.

Phatra Securities said in a report that with a combined 100 basis points having been cut by the central bank since the first reduction on January 7, the clear admission of weak domestic demand implies more cuts to come.

The bond market has priced this in. The yield of bonds

with maturity of less than three years is already trading below the new policy rate of 4 per cent. The two-year bond yield has priced in at least another 25-basis-point cut at the Monetary Policy Committee meeting on May 23.

However, despite the recent rate cut, the Bank of Thailand said the key question remained whether bank lending will grow significantly, as business investment expansion has been sluggish due to low confidence.

Assistant central bank governor Krirk Vanikkul said yesterday that the bank rate cut would bring about positive consequences, as borrowers will have lower funding costs. However, the lower lending rate does not mean higher lending as people have become more cautious.

"Rate reduction is a good thing, but how about lending?" Krirk said. "This will be of no use without lending growth. Why would people invest amid the current economic slowdown? I think this will take time."

He added that although banks want to lend, business operators might not want to borrow.

Krung Thai Bank (KTB) earlier this week announced 50-basis-point cuts in deposit rates for all types of fixed account, and by 25-50 basis points for lending rates. The cuts, effective from tomorrow, are expected to trigger the second round of rate reductions among large banks since early this year.

KTB's move followed the Monetary Policy Committee's decision on April 11 to cut the policy rate by 50 basis points to 4 per cent.

Last month, banking interest rates were cut by 25 basis points in the first round of reductions this year. Siam Commercial Bank led the way on that occasion.

KTB's deposit rates will be reduced from 3.25-3.5 per cent to 2.75-3 per cent, and its minimum lending rate (MLR) will fall from 7.5 per cent to 7 per cent - the lowest level in the industry, as the MLR of large banks averages 7.5 per cent.

Seamico Securities said other commercial banks would follow KTB's lead in cutting their MLR rates, although it is not certain whether they will cut in the same magnitude as KTB - up to 50 basis points - at once.

Chartsiri Sophonpanich, president of Bangkok Bank, said last week - before KTB announced its rate cut - that the bank would consider market movements before making a decision on its own rate cut. However, Bangkok Bank's next rate adjustment is expected to take place in the next few months.

"Therefore, we have maintained our assumption of an average MLR cut this year of 100 basis points," Seamico Securities said in its report.

"The relatively high MLR cut of up to 50 basis points [by KTB] was beyond our expectation. A total 75-basis-point cut in the MLR since early this year will reduce KTB's NIM (net interest margin) below the level we expected."

Anoma Srisukkasem

Somruedi Banchongduang

The Nation